Bernard Baruch: The Adventures of a Wall Street Legend Page 4
Next Charles A. Tatum, another patient of Baruch’s father and a Quaker from an old Philadelphia family, offered an apprenticeship in his wholesale glassware firm. As the business was situated in Manhattan, no maternal objections were raised, and Baruch took the job at $3 a week. This was in the summer of 1889. Dr. Baruch was then resident physician at the West End Hotel in the seaside resort of Long Branch, New Jersey. Sometimes his older sons came out on the train from New York for the weekend and put up on cots in his office. On Saturday nights, in defiance of standing family orders, Baruch would slip off to a local gambling hall, or “hell,” as it was known to reforming elements. Once he was a couple of dollars ahead at roulette when the doctor appeared at the casino door. On recollection, Baruch stated that the room fell silent when his father entered, as if his goodness cast a beatific spell on the patrons. The doctor made his way to his son’s table, drew up next to him and said gently, “Son, when you are ready, we will go home.” Baruch was ready right away. He followed his father out the door and back to the hotel. The office in which Baruch slowly began to undress adjoined the bedroom in which his parents slept; soon the door opened and his father reappeared. “To think that at my age,” he said (he was forty-nine), “I should have to take my son from a gambling house.” Forty years later, Baruch said that the memory still troubled him. (The distinction that Dr. Baruch drew between racing and roulette was unexplained but deeply felt. A few years earlier he had given his son two silver dollars to bet on a horse named Pasha. The horse, Baruch’s first racetrack selection, lost.)
When at last Baruch had drifted off to sleep he was awakened by the presence of his mother on the edge of his cot. As he opened his eyes, she whispered consolingly and gathered him up in her arms. Now thoroughly rattled, he lay awake long after she had gone. At 5 a.m., he got up, dressed, crept out, breakfasted at a saloon near the railroad station with some coachmen and horse handlers, and caught the first train back to New York. The day was still young when he fell in with a cousin and some friends of his cousin’s in Manhattan. When somebody suggested an all-day poker game, Baruch hospitably offered the use of his own home, his parents being in Long Branch. The game was going strong in the basement when the cousin sprang from his chair, announcing, “Good Lord, there’s Aunt Belle!”
She was just mounting the steps. Baruch had failed to reckon that his guilt would induce a counter, maternal guilt, and that his mother would be off in pursuit of him. As she walked in the door, a file of young men, nonchalantly putting on vests and coats, passed her on their way out. Apparently seeing nothing but her son, she threw her arms around him and said: “I am so glad to see you! You have such a sensitive nature that I was afraid something serious might have happened.”
She told him that she had met a man on the train. After some talking he said he was a banker in need of an apprentice, and that he wanted someone dependable, bright, and upstanding. Mrs. Baruch instinctively replied that she knew just the boy—“My son, Bernard.”
Mrs. Baruch’s new banking friend was a Stock Exchange member and fellow East Sixties resident named Julius A. Kohn. Mr. Kohn’s approach to apprenticeship was the Frankfurt method in which a young man did a clerk’s job in return for the opportunity to learn. To start with no money changed hands. Banking sounded better than glassware, and Baruch served notice on Whitall, Tatum & Company and began work at Kohn’s, 46 Exchange Place. Soon he was learning about speculation, arbitrage, and foreign exchange, and was making $3 a week again.
His education was interrupted, or redirected, in the summer of 1890 by a casual suggestion of his Uncle Herman’s. Dr. Baruch was about to leave for Europe to see his parents, and the Baruch clan, including Uncle Herman, had gathered at dockside to wish him bon voyage. A few hours before sailing time, Herman asked his brother whether Bernie couldn’t go too. The answer was yes, if he could get home, pack, and get back to the ship before lines were cast off. This Baruch managed to do but soon profoundly wished he hadn’t. He and the three strangers who shared his cabin, all Cubans, got sick and stayed sick. Once on dry land, father and son traveled to the Prussian city of Posen, where Dr. Baruch was reunited with his mother and father for the first time since he emigrated thirty-five years before. The doctor introduced the handsome towering boy to his grandfather and namesake, Bernhard, and the three generations drove off together to Schwersenz.
Meanwhile Mrs. Baruch patched things up with Kohn on behalf of her absent son. Kohn did take him back that fall on his return from Europe, but Baruch again grew restless, and late in 1890 he resigned and set out with Dick Lydon, his college pal, to strike it rich in the Colorado gold and silver mines. The adventurers journeyed west by day coach to Denver and then by stage to Cripple Creek. In the daytime they worked underground as “muckers,” clearing up the rock left behind by blasting. At night they gambled, Baruch having noticed that the house always seemed to win the big pots and laying his own small bets accordingly. They slept at the Palace Hotel in a large open room to the accompaniment of barrack noises.
By his own account, Baruch rubbed shoulders with the foremost speculator of the day (James R. Keene) and was complimented on his physique by the fairest beauty (Lillie Langtry, who caught sight of him shirtless aboard a sailboat). Furthermore, he was encouraged in his boxing by one of the greatest fighters, Bob Fitzsimmons, who had happened to be watching on the day he stepped into the ring with a big redheaded policeman. For a while the fight was all one way—the redhead’s. Then Baruch collected himself and dropped his man with a left to the stomach and a right to the chin.
Quoting Baruch:
I felt a slap on my back and turned to face freckled, grinning Bob Fitzsimmons.
“The prize ring lost a good man in you,” he said, laughing. “You were getting a licking but you hung on. That’s what you always want to do. You know how you feel and maybe you feel pretty bad. But you don’t know how the other fellow feels. Maybe he is worse off than you are.
“A fight is never over until one man is out,” he emphasized. “As long as you ain’t that man you have a chance. To be a champion you have to learn to take it or you can’t give it.”
Baruch never lost interest in boxing, and he never stopped quoting Fitzsimmons; he dusted off the champion remark in a telegram congratulating Franklin D. Roosevelt on his fourth-term victory in 1944. A favorite memento of his days at Woods’ and as a gym instructor at the West 69th Street Boys’ Club was a picture of himself in fighting trim, his arms folded across a bare chest with biceps bulging under his fists. His hair is thick and parted down the middle, his nose is straight, his face is unmarked, and his mustache is well tended. Quite obviously he is afraid of nothing.
At the time Baruch was still unemployed, but his mother kept her eyes open. In her charitable work she had met Abram B. deFrece, a well-to-do New York businessman and philanthropist, and deFrece put her in touch with Arthur A. Housman. Housman, who had just bought a “seat,” or membership, on the New York Stock Exchange, met Baruch, and he hired him.
Housman was a big man, standing six feet tall and weighing more than two hundred pounds, and an optimistic one. He was some fifteen years older than Baruch, was unmarried, and was the principal breadwinner for many or all of his five sisters. The son of a New York wholesale dry-goods merchant, he entered Wall Street in 1876 and made a name for himself as a bull even in the professionally optimistic circles of brokers and customers’ men. In 1898, he demonstrated his versatility by citing peace as a reason to buy stocks in January and war as a reason to buy them in July (hostilities between Spain and the United States having intervened in April). “It seems to me absolutely certain,” he declared that summer, “that we are entering upon a period of wonderful prosperity,” as, indeed, we were. The McKinley bull market vindicated Housman and made him rich. By the end of the 1890s he had become known in the Street as “Morgan’s broker,” meaning Morgan’s representative on the floor of the New York Stock Exchange. “While Housman never said he was,” a newspaper report co
mmented, “Wall Street found ample confirmation for the report in the almost daily conferences he had at the office of the banker.” (Interestingly, Baruch failed to mention any such connection with the great firm; as for himself, he believed that the Morgan partners systematically thwarted him.) A pen-and-ink sketch around the turn of the century shows Housman sitting in the bar of the old Waldorf-Astoria with James R. Keene, master speculator, and the broker Jake Field. Of Field the story was told that once, when asked at a dinner party whether he liked Balzac, he answered, “I never deal in dem outside stocks.” Housman, who amply fills a carved wooden chair, rests his right hand on an upright cane. He wears a bowler and a pair of pince-nez.
Baruch began in early 1891 as a clerk, runner, and office boy. He bore securities here and there, called for checks, copied and filed letters, copied transactions in Mr. Housman’s record book, and fetched sandwiches for the Housman brothers, Clarence and Fred. This last menial errand grated on him and sometimes brought him the jeers of other young men, but, as Baruch recalled, “I was paid to do whatever I was told, and I did it. I got into a fight with another runner and after that they didn’t jeer at me very much.”
Baruch envied the Ivy League men who started out on the ladder a rung or two higher and had more pocket money than he did. They lunched at Delmonico’s or Fred Eberlins and drove carriages on Sundays while he ate at sandwich counters and took the air on foot. Thanks both to creative envy and a lack of funds for dissipation, he applied himself to study. He attended night classes in bookkeeping and business law and memorized facts and figures about railroads and industrial corporations. He became a close reader of the Commercial & Financial Chronicle and Poor’s Manual. He learned to draw a workmanlike map of the Union and superimpose the routes of the important railroads and the names of the principal products they carried so that he could grasp the financial significance of the news without time-consuming research. He gained a reputation as a bright and encyclopedic young man.
His rise from runner to junior financial analyst was completed as early as 1895, because that was the year that James Keene commissioned him to investigate the Brooklyn Union Gas Company and its new securities. As Baruch, aged twenty-five, was preparing his report, someone from the underwriting syndicate offered him a $1,500 “commission” to accentuate the positive; this fact too was disclosed to Keene.
To scout for Keene was an honor—it was he whom Morgan would ask to make a market in the new shares of the United States Steel Corporation in 1901. The trader had begun his career in California in the 1850s as a miner, newspaperman, mule puncher, and speculator in mining stocks and had run his bank account from nothing to $150,000 and all the way back down again. Heavily in debt, he hit upon the idea of becoming a broker rather than a customer. The change was revolutionary, and soon he was a millionaire and president of the Mining Exchange. He made a fortune by selling railroad stocks short in 1876 but lost all that and more in the wheat market in the 1880s. Again he began to rebuild his affairs, and again he succeeded, leading one admirer to praise his life as a “symphony of gamble.” Asked why he persisted in putting his fortune at risk, Keene replied: “Why does a dog chase his thousandth rabbit? All life is speculation. The spirit of speculation is born with men.” When provoked he swore colorfully in a penetrating high voice, and when the spirit moved him he quoted at length from his favorite poets. To “Deacon” S. V. White, another trader who went from boom to bust and back, and who announced grandly that he was the king of a certain speculative situation, Keene cautioned: “Uneasy lies the head that wears the crown. . . . Fierce is the light that beats around the throne.”
Baruch’s introduction to Keene was provided by a friend of Housman’s, the lawyer Middleton Schoolbred Burrill. In the early 1890s, when A. A. Housman & Company did mainly a wholesale business with other brokers, Burrill was the rare retail customer. The son of a lawyer who represented some Vanderbilt interests, he practiced in his father’s office and speculated in stocks, first as an amateur and later, frequently teamed with Baruch, as a professional. In the 1890s he rode a commuter train with Keene and drank highballs with Housman. Keene, Housman, and Burrill each preferred the optimistic, or bull, side of the market, buying for the rise rather than selling for the fall. It was Keene who coined the saying: “You don’t see any Fifth Avenue mansions built by bears.” Of Burrill, Baruch said: “He had the most tremendous belief in the future of America and in the ability of his fellowmen to function and conquer anything, and I got that from him also. I learned to feel that there were no ills from which humans suffered that could not be overcome by human ingenuity. . . .” Burrill drank socially until the day his doctor prescribed abstention, at which point he instantly quit. According to Baruch, the same self-control stood the lawyer well in the market.
Baruch was an up-and-coming office boy when he was introduced to Burrill. The older man, who had lost two daughters and a son of his own, was impressed by the younger; and the younger was flattered by the attention of the older. When a question of fact arose, Burrill got in the habit of asking Baruch before consulting a reference book. Sometimes the two ate lunch together at a counter in the basement of the Consolidated Stock Exchange, ordering roast beef and mashed potatoes and talking about stocks. Burrill was struck by Baruch’s trustworthiness, a quality he called to the attention of Keene.
Keene was an ardent turfman—he donated the skeleton of his own champion Sysonby to the Museum of Natural History and called on it there from time to time as a man might visit the grave of a crony—and he liked to back his racing judgment with money. One day a Keene horse was entered to run at Coney Island, and the owner wished to place a big bet on him; so as not to queer the odds unnecessarily, he wanted to bet anonymously. Burrill suggested that Baruch could be trusted for the job, and the young man was called to the speculator’s office for an interview. Satisfied of his character, experience, and brawn, Keene gave him several thousand dollars in cash with the instructions that he was to bet it all silently.
Keene’s horse won in a canter [Baruch related]. I returned to the city on the 34th Street ferry with my pockets literally bulging. I kept worrying that someone might hit me on the head and take all the money away.
When some swelling waves struck the front of the ferryboat, I remember thinking that we were about to capsize. Buttoning my coat tightly, I decided that if the ship went down I would strike out to get far away from the crowd so that no one would be able to pull me down.
He landed safely, of course, won Keene’s confidence, and came to perform such services for him as investigating Brooklyn Union Gas.
Baruch’s gift for making friends was natural, but a certain part of his fluency in financial markets was acquired. In time the two capacities enhanced one another. His friends helped him to speculate; as he grew richer, his circle of acquaintances widened, and the more people he knew, the better his information became. He befriended Richard Limburger, head of the arbitrage department of what at the time was one of the leading arbitrage firms, Ladenburg, Thalmann & Company. Fred Edey, an important customer of Housman’s, was a fast enough friend to become godfather to Belle, Baruch’s first child, at her confirmation in the Episcopal Church. When he was an old man, Baruch told a broker friend that, early in his career, a big-time operator had given him a “free ride,” meaning a free share in a stock-market profit. If Baruch weren’t good-looking and companionable, he might never have met his benefactor, but if he hadn’t also been smart and quick, the rich man might never have paid attention to him.
Since he traded too much with too little money, Baruch made a slow start in the market. He dealt in ten-share lots on the Consolidated Stock Exchange through the firm of Honigman & Prince, of whom Prince was a distant relation. He tapped closer relatives for funds, including an uncle, Harry C. Lytton, a Chicago haberdasher; evidently his uncle and he lost money together. In reminiscing, Baruch said that he sometimes bet a dollar on whether the next Stock Exchange trade would be up, down, or unchanged from
the previous price on the tape, and it isn’t unthinkable that he patronized the bucket shops in which such low-budget speculation was carried on. One of his first losing family investments was to help finance an out-of-town production of the melodrama East Lynne. In 1890 Harty was an aspiring actor, and he had fallen under the influence of an older would-be actress. Baruch, in turn, was under his brother’s spell, and when Harty and his friend presented their plan to mount a production of East Lynne at the opera house in Centerville, New Jersey, Baruch agreed that the idea was foolproof. Again to quote Baruch:
Perhaps the actors were artists, as represented. If so, they were not artists who knew the lines of East Lynne. During Act One, the audience was alternately angry and amused. During the second act it was only angry.
Although small, this audience outnumbered the performers, so I asked the fellow at the box office to give the patrons their money back. Like the Duke in Huckleberry Finn, I went backstage and told the troupe that fortunately I had bought round-trip tickets and it was only a short walk through a dark street to the depot.
I think we were at the railroad station before the audience realized there would be no third act. A train had just pulled in. We climbed aboard without even noticing which way it was going. Luckily it was headed for New York.
Later, to his father, Baruch proposed a scheme that he had heard from a man whom they both had met on their voyage home from Europe. The idea was to build a tramway to a hotel at Put-in-Bay on an island in Lake Erie. Baruch was enchanted by the scheme, and he talked his father into investing $8,000 in it. All the money was lost, and although his father never upbraided him, Baruch suffered enormously. When subsequently he mentioned to his mother that Tennessee Coal & Iron was cheap, and with $500 he could make some money in the stock, his father unexpectedly appeared with a check in that amount. The gesture of confidence touched him.