If you were an investor during the period of time known for the Robber Barrons or the turn of the century, you likely held railroad stocks or bonds. If you transport yourself to that time period, most of the people lived on east coast and had arrived by ship, transported their goods by ship and thought about the sea. After gold was discovered in California, there was a migration or a gold rush of people to go which meant they needed transportation services. The choices to go were by sea or by land, via wagon trains. A few decades later, railroads were being built all over the US to bring out the riches of the earth both in the rocks and from the continuing riches of the farmlands we know today. In every new industry there are many competitors but eventually companies need to make money or consolidation happen. In the world of logistics, if you have the right of way into the large urban centers, the railroad will make money, if not something needs to happen.

In a book called American Rascal – How Jay Gould built Wall Street’s Biggest Fortune written by Greg Steinmetz published by Simon & Schuster, NY, 2022 the author highlights how Mr. Gould was became one of the wealthiest operators on Wall Street. It is important to remember; there were very few rules or regulations because they believed regulations would stifle progress Much of what happened now would be declared illegal. However, in those times, it was expected to be done to achieve results.

Mr. Gould was born in upstate Pennsylvania and at that time – leather factories needed to soak cowhides in the tannic acid found in hemlock trees. If there was a forest of hemlock trees, it was gold to the owners. Trees are cut and sent to the tanneries. Mr. Gould partnered with a tannery owner to find a forest of hemlocks, set up a tannery and he was in his early 20’s, eventually came up with 50% of the tannery and sold it.

Railroads, similar in today’s world to operate need outside capital. They need to pay for land, rails and rolling stock. If someone had access to deep-pocketed investors at home and abroad, money was to be made. Mr. moved to Wall Street and set himself up as a stockbroker and private investor. In today’s environment, Mr. Gould was a value investor, or he dug deep to discover whatever was knowable, separating the nonsensical from the plausible. He was methodical, more voracious in search of insights and more patient with minutiae.

Mr. Gould met some wealthy investors as a stockbroker, one investor in particular he married one of his daughters, which helped his business. He was offered the ability to buy some bonds in a railway, converted the bonds to equity, became President of the railway and eventually sold it to another railway to make a profit of $100,000 or $2.5 million. Not a bad investment for 18 months.

A famous event happened on Wall Street called the Harlem Corner. Gould was not involved but watched and learned the master of Cornelius Vanderbilt work with corners and short squeezes. Mr. Gould became acquainted with Daniel Drew who was a market manipulator. He specialized in bear raids, but spreading lies and the company’s position.

Before railroads, there was the building of canals, the most famous is the Erie Canal connecting Albany to Buffalo, once completed goods moved from NY to Albany to Buffalo, connecting to the Great Lakes and Chicago. When railroad age began, the Erie Railroad connected Albany to Buffalo and time to ship goods fell from 3 weeks to 8 days. For all the wonderful location, the railroad was not the best constructed – it used a different track gage so cars could not be transferred to other lines; it did not go into New York stopping 28 miles north in New Jersey. Despite the advantages it had, the railway did not make money and went into bankruptcy.

Daniel Drew joined the Board and became treasurer. Being an insider was a dream come true for Drew. As an outsider he had to make things up, as an insider, he did not have to make anything up. He just had to buy and sell before corporate news. Erie’s price could be and was a yo-yo is his hands. These days it is illegal, back then all major investors did it.

Vanderbilt owned the New York Central, he proposed his company work with the Erie and Pennsylvania as a quasi-monopoly to ensure all 3 companies had higher profits. Drew was independent and liked manipulation, Vanderbilt did not like for his companies and thus the Erie War was on. Mr. Gould joined the Board of Erie.

There was 2 ways to run a railroad in the 1860s, run trains on time, keep rolling stock in good condition, charge a fair price, pay steady dividends to shareholders as Vanderbilt did. The other way was Drew’s way – manipulate stock prices and make profits. Mr. Gould joined Mr. Drew.

Linking to dividend paying stocks, when you buy a dividend producing stock, you are expecting the first way to run a railroad will happen because what happened in the 1800’s is illegal in our environment. While investors still short stocks, they will try to flood the news with the misinformation, there are enough sources to verify if the information is good or bad. The new actor on the scene is information bots may do the job which can do the job more effectively for a short period of time. Often it is better to buy and hold and not use margins, that way you can have patience to make a decision.

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