Wednesday, August 16, 2006

Personalities: Hetty Green 4 comments

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Investment and finance has somehow, always been a profession associated with men. Perhaps it is the general stereotype that men are better with numbers, or that aggression, a trait atypical of women, is a prerequisite in the industry. The best known woman investor lived more than 100 years ago, and she was hardly a typical woman.

Hetty Green was born in Massachusetts in 1834, to a relatively wealthy family. She acquired her financial knowledge early, spending much of her youth with her father and grandfather, learning about financing and business. In 1865, at the age of 31, she received a $5M inheritance when her father passed away. At the time, women were thought to be incapable of managing money, so such assets would typically be held in a trust managed by a man. Hetty struggled against the establishment and eventually was able to gain control over her inheritance.

A main reason why Hetty Green's name has survived through the ages was her eccentricity, in particular her miserliness. Her fortune grew to tens of millions, but it was almost impossible to pry a single penny from her grasp. Hetty would purchase a newspaper for 2 cents, then resell it after she read it. Every day, she wore the same long black dress, only buying new clothes when her outfit became threadbare. The most extreme example of her miserliness was when Hetty's son, Ned, injured his leg in a sledding accident. Not wanting to pay for a doctor, she attempted to take care of Ned herself ...... Ned developed gangrene and the leg had to be amputated.

As a result of her miserly and eccentric reputation, as well as her strange appearance, Hetty Green came to be known as the "Witch of Wall Street". However, she was a successful businesswoman who was a peer with the best male financiers of the time. On several occasions the City of New York came to Hetty in need of loans to keep the city afloat, most particularly during the Panic of 1907; she wrote a check for $1.1 million and took her payment in short-term revenue bonds. At her death in 1916 she owned about 6,000 pieces of real estate across forty-eight states, including railroads, theaters, cemeteries, hotels, office buildings, and the mortgages to nearly six hundred churches; the total worth was estimated at $100-200M --- billions in today's dollars, and undoubtedly making her the richest woman in the world at that time save for royalty.

Unsurprisingly, Hetty Green was a value investor. As she said, "There is no secret in fortune making. All you have to do is buy cheap and sell dear, act with thrift and shrewdness and be persistent." Green did not seek investments that would promise quick returns but instead invested conservatively and with the long-term in mind. Before deciding on an investment, she would research as much information on it as possible. In addition to buying government bonds, Green primarily invested in railroads and real estate in places like New York, Chicago, and St. Louis. Hetty Green liked real assets, and was neither speculative, nor ultra-conservative. The railroads that Hetty owned were in an exciting growth industry in her days.

Her specialty was buying when everyone else was panicking. Hetty did not borrow, she maintained significant liquid assets, and she knew the value of stocks and bonds. At that time, the stock market was not as regulated as it is now --- margin requirements were minimal -- people could get huge amounts of leverage by buying stocks almost entirely with borrowed money. When crisis arose, cash was king. Hetty Green had both the means and knowledge to profit. For instance, days after the end of the Civil War, she bought Civil War bonds that everyone thought were worthless, soon doubling her net worth. Later, during the Panic of 1907, when a string of banks failed and the stock market crashed, Hetty was buying with both hands.

On retrospect, it was not such a great investment performance. She transformed $5 million (her inheritance) into more than $100 million over the course of 51 years. If we assume she generally didn't spend her principal and rarely paid taxes, then she really only made about 6% a year. This makes sense, considering that she held a lot of cash and bonds. But it doesn't compare well with the stock market's long-term returns or the even higher returns investors can achieve with value stocks. If she had made 10% a year, she would have died with about $650 million rather than $100 million. If she had made the 20% returns that some value investors like Buffett have achieved, she would have been worth almost $55 billion. Rather, she was infamous, more for her eccentricity and frugality. Perhaps one lesson to learn from her is to be careful with one's expenses and to let the money compounding magic work for oneself. Of course, it would help to have several millions to start with.

(1) Wikipedia article: Hetty Green
(2) Motley Fool article: The Witch of Wall Street
(3) National Women's History Museum: Hetty Green




Anonymous Anonymous said...

The reason women were not thought of as being a good about finances as men,was because women did not have the right to vote, were kept out of most careers,and factories that only hired women and girls did so because they could gat away with paying them less money than men.Also you would not leave home much if you are on the rag every month.

11/16/2008 1:53 PM  
Anonymous Anonymous said...

When is the biography channel going to do an episode on Hetty Green?

11/16/2008 1:54 PM  
Blogger DanielXX said...

There's a book available in the library, "Women of Wall Street" or something liddat.

Strange that great investors are always a bit eccentric. Warren Buffett is too. He's quite distant towards his kids.

11/16/2008 8:18 PM  
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