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.

If you look into recent history, there was 2 brothers who had oil wealth and decided to the silver market was undervalued. They pushed up the price, but did not sell enough when the price fell and lost $1.7 billion. In 1869, Mr. Gould decided gold was undervalued, under the idea every harvest time, the price of gold surged, if they could persuade the government to let the gold price rise in line with seasonal demand, there was money to be made.

There were risks at the time, during the Civil War, the government ran out of gold to pay soldiers and switched to paper money known as greenbacks. It promised to buy them back after the war at a price of 6 ounces of gold for 100 greenback. The price of gold fluctuated during the War, before Gettysburg the price went to 287, after the battle the price fell to 131, given the government said the price should be 100. After the War, the price went up to 150. Farmers wanted the price to be high to pay off their loans The banks wanted the price to be 100.

The Treasury Board President believed in gold not greenbacks. President Grant backed the Treasury Board President. But what if the President changed his mind or it look like he changed his mind?

Gould was attempting a mini-corner. Buy enough gold to make gold scarce to drive up the price, but not enough to allow government to intervene by releasing gold in the marketplace. Would the President commit to a new policy? did Gould have people on the inside giving incentives?

The plan worked for a while, gold went up, Mr. Gould was able to sell half his position, but he needed another day. The gold price traded on Black Friday and the government said they were going to sell $4 million of their holdings, the price went down and on that day, $500 million traded hands or all the gold in the country had turned over several times.

Mr. Gould was able to escape without too much damage, but his partner James Fisk went bankrupt. Another consequence was British investors in railway stocks, wanted change in Erie Railroad and Mr. Gould appointed a new Board and he sold his shares.

Mr. Gould went to a new railway – Union Pacific. While it was true, Mr. Gould looted the treasury of Erie Railroad, he also made improvements to the railway and ran it by winning new business, improving service and making it better. One of the competitors of the Union Pacific was the Kansas Pacific, Mr. Gould went to the Netherlands to buy bonds from the Dutch holders of a subsidiary – Denver Pacific. He bought them for 74 cents on the dollar; this pushed up the price of Kansas Pacific shares and ending merging the Kansas Pacific with the Union Pacific.

In 1881, Gould through a variety of purchases to enable control, he was the master of 16,000 miles or one of every 6 miles, giving him 15% of the largest, most important industry in the country. The choice of buying the railways was to pressure the more dominant railway in the area into a better deal for his railway or consolidation of the industry.

One of the many methods, Mr. Gould used to consolidate was to purchase a competitor knowing every railway has a profit center where they make most of their revenues and profits. If he cut rates to decrease the competitor’s revenues and profits, the company was more willing to negotiate. If a company does it enough times, then their reputation proceeds the conversation of working together.

Linking to dividend paying stocks, often the best stocks to buy are the ones that industries have been consolidated. Many took risks, some came out ahead, some did not, but after the industry has been consolidated, profits can be made. If the industry can make profits, then it can pay dividends and as investor you can enjoy reading about how it was consolidated to learn about the new industries that will invariably go through the process.

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