In this edition of the series on the heroes and villains of the stock markets, I am going to tell you about Jay Gould, who was also called the Richest man who ever lived. His story begins early, when he was barely 17. This was in 1853, and he declared impetuously to his friend Abel Crossby, “Crossby, I’m going to be rich. I’ve seen enough to realise what can be accomplished by means of riches, and I tell you I’m going to be rich.”
Who was Jay Gould and why should we talk about him? The book on him by Greg Steinmetz is titled American Rascal: How Jay Gould Built Wall Street’s Biggest Fortune. The term ‘rascal’ it would seem followed him into adulthood from his childhood where he was said to be a precocious child. He was born on May 27, 1836 and was the seventh child of his parents. He was precocious but extremely sharp, working on problems in Math till he found a solution, reading whatever he could find. When he was barely 13, he left home. The local school, he told his parents the local school he attended was too easy for him.
He joined a new school, Hobart Academy, and to pay for his school fees and living expenses he taught himself accounting and kept the books for a blacksmith. He had no intention of getting back to farming, which his family was into. He was keen on getting into surveying and approached a draughtsman who had the intention to make and sell a map of Ulster city. His plan didn’t work out, and he then met with another farmer who offered him 50 cents to make a noon mark, a simple sundial, with his surveying tools. Jay grabbed this and then the opportunities that followed and soon earned a few hundred dollars. “That was the first money I made in business,” he would say later.
He then moved into the leather tanning business, making some money and then selling it to move to another business. He wanted to get out of Pennsylvania and went to New York. He was fascinated by the city. “I am trying to start myself in the smoky world of stocks and bonds” he wrote to a friend in November 1860. “There are magician’s skills to be learned on Wall Street, and I mean to learn them.”
Buffered by the money he had made from selling lumber, he left Pennsylvania and took up lodgings at the Everest house in New York. At the time, trading in railroad stocks was dominant on the New York stock exchange and Wall Street was getting crowded. Quick on the draw, Gould set up business on Wall Street as a stock broker and private investor. He would read the newspapers and assess the news against the rumours he got off the street.
He would never invest on hunches, but instead dug deep to discover the real reasons, separating plausible facts from nonsensical rumours that dominated the street trading. He was diligent and methodical in his search for information and facts, which stood him in good stead. He also knew that he had to make the right connections. He made acquaintance with Daniel Miller, who was one of the leading merchants in New York with a small fortune to his name. Gould married Miller’s daughter, and so established himself in the social circles of New York despite being an outsider.
At this point, an acquaintance offered Gould a large block of bonds in a troubled railroad, the Rutland & Washington. The company wasn’t doing well, and so the price of these bonds had fallen to 10 cents on the dollar. It was a steal, most folks assumed at this value the railroad would fail. Gould studied Rutland’s assets, found them solid and knew that the railroad could turn profitable with the right management.
The bonds he could purchase would translate into enough stock for him to take control of the railroad. He bought the bonds for $5000, converted them to stock, and appointed himself president of the company. His only experience with railroads so far was that of a surveyor, but he was confident about his ability to turn the company around.
He spent the week in Vermont, and commuted home on the weekends, fully invested in turning around the railroad company. He invested in track, cut costs, and pitched customers on the railroads service. He also trimmed expenses. But after 18 months, he sold it to a New York rival and made $100,000 on his $5,000 dollar investment, an amount equal to $2.5 million in current dollars.
He wrote to his former school teacher, “Now that I am in this place, it is a puzzle to me how I endured before. Everything prior seems to have been boxing in the dark, scraping without reasons. Now I have my road to walk and my reason for walking it. Now the pieces fit, and this ambition is no longer blind but divine, a true and noble and necessary path. I see things very, very, clearly. I feel inspired by an artist’s conception. Divine inspiration? I cannot say. But my road is laid out before me in the plainest of ways.”
(To be continued in the next column.)
American Rascal: How Jay Gould Built Wall Street’s Biggest Fortune by Greg Steinmetz, published by Simon & Schuster August 2022
Kirit Manral is a professional trader, and has been running a mentorship program in trading since 2019, with mentees from around the globe. He can be found on Twitter at @KiritManral