“Nowhere does history indulge in repetitions so often or so uniformly as in Wall Street. When you read contemporary accounts of booms or panics, the one thing that strikes you most forcibly is how little either stock speculation or stock speculators today differ from yesterday. The game does not change and neither does human nature.”
The quote above will sound familiar to advisors who have had to tell worried investors about market cycles and the need to sit tight during volatile periods. What’s surprising is where this statement comes from: a 1923 novel, Reminiscences of a Stock Operator, written by American writer Edwin Lefèvre in a fictionalized investment biography of speculator Jesse Lauriston Livermore.
Although nearly a century has passed since the novel was first published, it still stands as one of the best investment books that Steve Blumenthal (left), the Philadelphia-based founder of CMG Capital Management and a Merrill Lynch veteran, has ever read. The book was passed on to Blumenthal when he was a young institutional broker at Merrill Lynch by his mentor, John Ray, a portfolio manager at Delaware Funds.
“In 1984 and for years that followed, I would walk a few blocks from 15th and Market in downtown Philadelphia to John Ray’s office,” CMG’s chief executive recalls in “The Blumenthal Viewpoint: Behavior Gap,” published on Aug. 23. “I was always nervous. I knew very little about the business but was hungry to learn. ‘John, what should I read?’ He handed me his copy and said, ‘I want it back.’”
A big part of the book’s appeal for Blumenthal is the way it distinguishes between investors and speculators.
As Reminiscences of a Stock Operator implies, broadly diversified portfolios will always underperform the top-performing asset classes at any given time. And nowadays, Blumenthal says, advisors are often faced with restless clients who compare their total investment portfolio performance to a single index like the S&P 500 Index.
What Blumenthal learned when he first read that novel back in 1984 applies today, he says, and it’s advice he gives to his advisor clients who phone and want to talk about investor behavior.