The investment skills of Hetty Green (1834-1916) earned her the sobriquet Queen of Wall Street in the decades before the First World War. With stocks currently off their highs and possibly headed for another downward tumble (if past bear markets are a guide), it might be a good time to take a look at her contrarian style.
What was Ms. Green’s track record? She turned an inheritance of US$6-million – received in 1865 when she was 31 years old – into a fortune of more than US$100-million by the time of her death in 1916. In current dollars, that was a net worth of more than US$2-billion.
If the average annual return is calculated, the performance may not seem hugely impressive to some. But considering the performance period had extremely volatile financial markets, a gold standard that brought many years of economic depression, and numerous obstacles for women, Ms. Green would seem to merit a place in the pantheon of the investing greats.
Her investment strategy was decidedly contrarian. As she told a reporter: “I buy when things are low and nobody wants them. I keep them until they go up and people are crazy to get them.”
Ms. Green always kept a large war chest of cash on hand to buy up real estate, bonds and railway stocks when pessimism was rife. She was particularly fond of real estate, watching out for foreclosures to pick up properties dirt cheap. She also looked to see which way a city was developing and bought ahead of the build-out. A lot of her money was loaned out as mortgages, amply secured by the value of properties they financed.
When it came to buying stocks, she never bought on margin so that she would have staying power if and when the market went down. Trading on 10-per-cent margins is what got her husband into trouble. She wanted to remain invested over the long term, if not add to her holdings during the sell-offs.
It’s no good simply buying assets just because their prices are down; a low price can be appropriate for an unsustainable enterprise. An investor needs to have the investigation skills to distinguish the real value of assets in order to determine whether they are truly on sale.
“Before deciding on an investment, I seek out every kind of information about it,” Ms. Green once remarked. A story illustrates her diligence.
One day, she went to buy a horse and wagon from a man. But first, she found someone with a grudge against the owner and persuaded him to tell every fault of the horse and rig. Then she knew what she was getting, and used the information to bargain the price down by half.
Another time, she was buying several thousand yards of curtain lace and had samples sent to her hotel room. Before sending them back with her order, she spent several hours with a pin, carefully tracing out the pattern of the chosen sample in a cushion. When coarser lace was delivered, she was able to prove the deception and obtain the lace she ordered.
Besides diligence and strong investigation skills, it also helps to have some business savvy. This can be acquired through study and experience. But if you are a parent of young children, you can give them an early start.
This was the case for Ms. Green. She had a passion for business and the acumen to go with it, thanks to her upbringing. From the age of 6 onward, she read the financial news to her father and grandfather, discussed commercial matters, went on business trips, read ledgers and traded commodities. At the age of 15, she became the bookkeeper for the family business.
As an adult, the accomplishments were hers alone. Indeed, her fortune would have been much larger if she didn’t have to pony up so much for Mr. Green’s wild speculations. When she was in her fifties and tired of repeatedly bailing him out, they separated. But she kept in constant touch and cared for him when he fell ill.
What she did was quite remarkable considering the barriers women faced at that time. Indeed, she could have lost all of her wealth because of the marital split. But a prenuptial agreement kept it in her hands, overruling the 19th-century legal doctrine of coverture that declared a woman’s property belonged to her husband.
Further reading:
- The Richest Woman in America: Hetty Green in the Gilded Age, by Janet Wallach
- The Witch of Wall Street: Hetty Green, by Boyden Sparkes and Samuel Taylor Moore
Larry MacDonald is an author, journalist and economist.