The railway or ribbons of steel fascinate many people – the engineering to build and maintain the railroads; the trains themselves; the cargos they carry particularly raw resources of grain, iron ore, coal and other stuff; the speed of the trains and the operations of the railway. In terms of financing the railroads, in the 1880 to the 1900s Donald Smith seemed to be everywhere in financing of the railroads. When he died he owned stocks and bonds up to 30% of the largest railroads – to keep track of his portfolio a trust company was founded. If he owned a securities company such as JP Morgan one might understand it, but Mr. Smith worked in the background for although he was President of a Bank, President of Trading Company, and President of the CPR, none of those jobs would have given him millions of dollars in income. Yet he accumulated a fortune. In the notes of the book Lord Stathcona Donald A Smith written by Donna McDonald published by Dundurn Press, Toronto and Oxford,  1996 it was noted many of Donald’s private papers burned in a fire.

Mr.Smith had bought mortgages and started from a clerk’s salary, but clearly he had the ability to rub two nickels together to produce more money for he saved or invested most of his income. In the notes section of the book is his portfolio and clearly many of the investments are in recurring income industries such as railroads, insurance and banks, utilities and hotels – which would have been reinvesting in companies he was knew from his day jobs. In later years, one of the land grants for the railroad was the iron ore near Duluth which Great Northern Railway had, it combined with James Hill’s purchases of land for $ 4 million  which eventually became Northern Securities when sold to US Steel for $400 million was a significant income, but that was in 1906. During the building of the CPR, similar to other trans country railways, the railway almost ran out of cash in 1883 and Mr. Smith was finding millions of dollars to continue to pay the bills. After the railroad operates it becomes profitable, not until. After the railroad is built, then the buying and selling of pieces of railway makes economic sense, but it still needs money to be done. Was it his money or the banks? did he do insider trading (although never charged) but times were different then and Mr. Smith was seen as influential but not a robber baron.

Linking to dividend paying stocks, we look to the past but the rules have changed. In the 1800’s and 1900’s there was no income tax to be paid; however there were fewer government supports or pensions. Now days it seems hard to save, yet when there is no alternative the recurring income and continuous payment theory has not changed. When you invest, time is a great asset; for if you see the world changing you maybe able to take advantage. If not enjoy the dividends along the way and you should have capital gains one way or the other.

There are more questions than answers, till the next time – to raising questions.