If the book reviews published on Amazon are any indication, some readers are searching for the secret to investment success in the myriad investment books and biographies by successful investors. Leon Levy, the author of The Mind of Wall Street writes "There is no system to beat the market. The future is never a simple replay of the past." A reader seeking the "secret" of Levy's success may be disappointed. The Mind of Wall Street is not an investment guide and proposes no single investment strategy. The Mind of Wall Street is Leon Levy's autobiography, covering the part of his life involving investment.

Leon Levy's long professional investment career started in 1948 and continued into the 1990s. In 1951 Levy was one of the founding partners of Oppenheimer and Co., which because a successful financial firm that created the eponymous Oppenheimer mutual funds. After leaving Oppenheimer and Co., Levy founded a successful hedge fund, Odyssey Partners.

Unlike books by "The Donald", Levy's book rarely brags about his investment success in more than an understated fashion. Measured by Levy's philanthropy, Levy has had stellar financial success. He retired with sufficient wealth to endow Bard College with $100 million and donated enough money to the New York Metropolitan Museum of Art that they named the Greek and Roman antiquities wing after him (for the next 75 years).

If we live long enough each of us is a bit like a time machine. Our experience reaches back into eras are that are now gone. The world that Leon Levy grew up in was very different from the world today. Discrimination against Jews was part of the landscape and in many cases prejudice was in the open, an accepted fact. Levy is a few years younger than my father, who attended Harvard on a scholarship (Kaplan, like Levy is a Jewish name). At that time there was a "Jewish quota", which limited the number of Jews who would be accepted at Harvard.

When Levy started his career on Wall Street, investment firms like Morgan and Merrill Lynch only hired WASPs (White, Anglo-Saxon, Protestants). There were a number of investment banks that were started by Jews, including Goldman Sachs, Warburg and Lehman Brothers. Ironically, these investment banks practiced their own forms of discrimination. Their founders were largely from Jewish families that had emigrated to the United States from Western Europe, primarily from Germany. They tended to also hire Jews whose families had emigrated from Western Europe and who had also attended "good schools".

Leon Levy's grandfather emigrated from Poland in 1865. Levy attended college at the City College of New York (CCNY). Although Levy's family was affluent, he was not from a well connected German Jewish family, nor had he attended a "name school". Leon's father, Jerome had some success as an investor and had connections at Hirsch and Company, where Levy got his first job in 1948.

Levy's grandfather and father were both in the wholesale dry good business. The term "dry goods" is becoming archaic. As far as I can tell, "dry goods" includes clothing and fabric. Apparently the Levy dry goods business specialized in stockings. Leon's father, Jerome was fascinated by markets. He preceded his son at CCNY, and later studied advanced economics. Jerome Levy's business acumen and investment skills kept the family comfortable during the Great Depression.

While Leon's professional investment career started in 1948, it seems to have had its roots in his childhood. While Leon was not a stellar student, he was fascinated by investment. He writes "Although I hated school, I loved doing research for my father." It was Leon's father who taught him how to read financial reports and research insider sales. This training provided the foundation on which Leon Levy built his successful investment career.

The post depression and especially early post World War II period could be considered the golden era of value investing. It was during this period that Graham and Dodd published their early work on fundamental analysis, which attempts to recognize under priced companies and assets. The training that Jerome Levy gave Leon and Leon's passion for investing were ideal for this era. Levy worked with Max Oppenheimer at Hirsch and Company. Presumably it was Levy's skill as an investment analyst that resulted in the invitation to become an early partner when Max Oppenheimer founded Oppenheimer and Co.

Benjamin Graham, who is considered the father of value investing and fundamental analysis also ran an investment fund. Unlike Graham, Levy is not a proponent of a single investment style or area (e.g., stocks). Levy has invested in stocks, corporate buy-outs, foreign exchange and hedge funds. Levy notes that times change and an investment approach that works in one era will not work in another. Many of the investments which seem to have built the fortunes of Levy and his colleagues are only available to those which access to significant amounts of capital. For example, Levy describes a successful investment in a bankrupt railroad, where Levy and his colleagues purchased a large stake in the rail road's corporate bonds and later its stock.

Levy's varied investments and knowledge of the market and market players makes for an interesting history. He provides a good summary of the demise of Long Term Capital Management (for those interested in a more detailed account of this fascinating story I recommend Nicholas Dunbar's book Inventing Money). There is also a sketch of the Asian "melt-down" in 1997 and the Russian bond default which followed. Levy watched George Soros' massive bet against the British Pound in 1992. He writes "Making a small investment, I went along for the ride".

The Mind of Wall Street was written before the United States conquered Iraq and George W. Bush pushed through a second massive tax cut in the face of increasing U.S. budget deficits. Even before these events, Levy writes:

I have no crystal ball, but I believe that we are in the early stages of a protracted recession and the value of the dollar will fall.

Any judgment about the future is a judgment about probabilities. In this case, I have given a high probability to my forecast of continuing recession and a falling dollar - say, two out of three chances. This might not seem a high probability, but with the world is a complicated place, and two-thirds is significantly better than chance.

Although Levy is pessimistic about the US stock market, he makes the point that for those who are wise enough to see them, there are always investment opportunities, regardless of the financial times. In The Mind of Wall Street, Levy looks for investment opportunities in the currency markets and in foreign stock markets. Levy suggests that Russia's emerging stock market may offer opportunities, along with high risk. After reading David Hoffman's The Oligarchs: Wealth & Power in the New Russia, I would be cautious before taking this advice.

The only way we can forecast the future is from past information. In many cases this technique works. We know that summers are usually warmer than winter, because of our past experience with seasons. But in the summer after the island of Krakatoa blew up, the summer was unusually cold. Volcanic islands erupting with the force of many megatons of dynamite, blowing themselves into the upper atmosphere, are rare events. But rare events do happen. Not only do rare events occur, but eras end and new eras begin. What was true in the past is no longer true. Levy makes the point several times that investment approaches that worked well in the past may not work under new conditions.

Since the end of World War II it has been almost dogma that over a long period, say twenty years, stocks are the investment with the best return. This is the thrust of the book Stocks for the Long Run, Second Edition by Jeremy J. Siegal. However, as Levy points out, this has not always been exactly true. There have been twenty year periods where there was little appreciation in stocks. For example, the Standard and Poor 500 index closed at 65.24 at the start of April 1962 and closed at 111.96 on March of 1982, twenty years later. An investment in the S&P 500 in October of 1968 (close 103) would have almost no appreciation over a twelve year period, ending in March of 1982 (as noted above, close at 111.96). Levy notes that while stocks have been excellent investments in past periods, this may not be true in the future. Other authors have discussed the fact that the "baby boom" will be retiring in the next two decades. As they retire they can be expected to sell off their assets to pay for retirement, possibly driving down the stock market (and even the realestate market).

Like all of us, Levy is a product of his generation. Like my father, Levy is from a generation where most men did not learn to type. Without typing skills, computer use is tedious and in passing Levy mentions that he has never used a computer. The revolution in mathematical and computer driven techniques brought about by quantitative finance seem to have passed Levy by. This makes Levy somewhat of an "old style" investor. However, I have no doubt that people will be making fortunes decades into the future using the same approaches that Levy and his colleagues used (there has been, for example, active speculation in the corporate bonds of the bankrupt WorldCom).

Many people as they get older and start to confront their mortality want to pass one their experience to later generations. Perhaps this is the motivation behind Levy's writing The Mind of Wall Street. As a biography with an emphasis on investing, the book is enjoyable. However, anyone looking for investment advice or even detailed accounts of Levy's investment deals may be disappointed.

Ian Kaplan
June 2003
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