Rockefeller v.s. Wall Street

“I suppose if I were to give investment advice, it would be to keep out of Wall Street.” — John D. Rockefeller

Based on that hard hitting title and this being the second John D. Rockefeller blog this week [Rockefeller v.s. Carnegie & Morgan], can you tell I’m reading Ron Chernow’s “Titan”? I’m about 3/4 of the way through this 700 page escapade (humble brag) and names like Vanderbilt, Morgan, Carnegie, Roosevelt and Gould are starting to pop up— all heavy hitters who’ve made their indelible mark on history. If we teleport back to the 1890s, Standard Oil is a standalone behemoth as the panic of 1893 ensues, which fostered William McKinley’s presidency in 1896. It’s no secret Johnny D. was against McKinley’s inauguration, but there was a bigger conundrum afoot; where was he going invest his wealth now?

In the years leading up to the millennium, Standard Oil had pretty much cornered the energy market. Yielding a modest annual salary of about $10 million bucks, he was able to stake his claim as a Midwest pioneer by establishing the University of Chicago in 1890. While he gladly put up the seed money, he preferred to keep his name off of University buildings and remain in the shadows. As a churchgoing, God-fearing man (perhaps to a fault, as J.P. Morgan might concede), that type of visible commemoration didn’t align with his moral compass. So, if not ego, what motivated John to put a college in Chicago? Did he seek motivation from his pal Leland Stanford after fleeing NYC in 1885 to set up his own Gold Coast institution? Either way, he saw an opportunity zone and relished the idea of expanding the country’s education system beyond the palatial walls of the Ivy League.

Founding University president William Rainey Harper (right foreground) heads to the 1901 Decennial Celebration with University founder John D. Rockefeller (left foreground)

Rockefeller bought a seat on the New York Stock Exchange in 1883, and at that time he made an obligatory appearance before the admissions committee, then totally avoided the exchange for the next 50 years. He emphasized that, during his tenure, Standard Oil was never listed on the exchange and that managements attention was “directed to the administration of business rather than to stock gambling.” John would pay attention to the market more than he let on, but he was mostly a passive investor and remained dubious of the Wall Street culture.

Even in old age, he had stock quotes delivered to him twice daily and would photographically know the precise number of shares he owned in his portfolio. As a born contrarian, he had a stringent set of investing principles which included buying in declining markets and selling in rising markets. When he scaled into a position, he bought stocks each time they declined an eight of a point; when unwinding a position, he sold each time a stock rose an eighth of a point— a technique that gave him an average return over an extended period.

“The way to make money is to buy when there’s blood in the streets.” — John D. Rockefeller

After accumulating a little trader hubris, he started offering stock tips until quickly learning his lesson after being burned by two lawsuits for doling out faulty market advice. In retrospect, he should’ve hit each person who walked into 26 Broadway with the “I aM nOt A fInAnCiAl AdViSoR” disclaimer etched in every finance twitter bio. Mr. Rockefeller’s 1900s version of a fintwit aide-memoire reads; “I have no prophetic vision as would make me try to mislead anyone else by one of my miserable guesses.”

There’s a little passage in the book where a group of ne’er-do-well’s would somehow infiltrate John’s bulwark and concoct a plot to swindle him for a bag of cash, as his status as a wealthy public figure was well known in public circles. In one instance, after being taken for the the proverbial ride, Henry Clay Frick came to his hotel suite in Augusta, Georgia to advise him on buying 50,000 shares of Reading Railroad stock. The moment Frick left, Rockefeller called his broker to liquidate his block of 47,500 shares and let the rest of his 2,500 shares ride at the stock’s all time high. He knew he had sat down at the poker table and wasn’t able to spot the sheep, it was him.

John wrestled with the timeless quandary faced by all investors: how could he buy stocks without pumping them, or sell without dragging them into the ground be taking his money off the table? As his notoriety pervaded, his market moves could set off maniacal stampede of traders hungry for action. To forestall this, he hired a double set of brokers who were ignorant of his identity, thus making his market moves behind a shield of intermediaries.

Looking down on the fountain featuring Youth, Prometheus and Maiden by Paul Manship, 1931, at RCA Building, Rockefeller Center

As the market ebbed and flowed, his profits would too. He would eventually extended a loan for $6 million to General Motors (about $98 million today) and took notes for his cash. Once the notes were paid off, John took his payment in shares of GM, which soared 1,300 points. Rockefeller preferred sure, steady gains to big speculative rampages. When a promoter tried to sling him some gold mining shares, he was quickly cut short by his consigliere, Frederick T. Gates, “If you were to say that the vein was pure gold, 24 karats fine, broad, easily workable, and close to the railway, to be had for a song, I doubt Mr. Rockefeller attention could be attached . . . He has come to a time in life and circumstances in fortune when these things no longer attract his cupidity.”

In order to finance the sporadic stock market forays, Rockefeller borrowed yuge sums from banks, sometimes up to $15 or $20 million and pledged his government bonds as collateral. Before long, Gates started to notice John’s growing disdain for globe-straddling moguls like Andrew Carnegie and J.P. Morgan, especially after his involvement with one of Morgan’s biggest blunders. After botching the Chicago Street Railway and the International Mercantile Marine, J.P.’s thwarted effort to forge a North Atlantic shipping cartel. To Rockefeller, this wasn’t happenstance— it was a direct reflection of Mr. Morgan’s antipathy. After J.P. kicked the bucket in 1913, John told his advisors to “keep up cordial relationships with the Morgan bank, while tartly remembering we’ve had sufficient experiences with the House of Morgan & Company in the role of pack horses for the their poor investments.”

“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” — John D. Rockefeller

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