5 lessons from the 'Witch' of Wall Street

Bain News Service, Publisher. Mrs. Hetty Green. [No Date Recorded on Caption Card] Photograph. Library of Congress, Prints and Photographs Division. https://www.loc.gov/item/2014680543/

During the Gilded Age of the late 19th century, a woman named Hetty Green was one of the most powerful financiers in the world. She made the vast majority of her US$100 million fortune (US$2.3 billion in today’s dollars) herself, investing in railroad stocks and bonds, government bonds, and mining stocks. She also provided loans to cash-strapped businesses and bailed out the city of New York on several occasions.

But high society didn’t quite know what to make of Green. Despite having all the makings of a socialite--a huge fortune and a direct bloodline to the Mayflower settlers--Green preferred to dress plainly and conduct business with men. That Green preferred black, Quaker-style dress to fancy clothes wasn’t the only reason she’s best remembered by the epithet “The Witch of Wall Street,” though.

Green was much maligned in the press and among her contemporaries, who called her stingy and greedy. People couldn't make sense of this grotesquely wealthy woman who reputedly didn’t give to charity and made a habit of suing people--including members of her own family. Her frugality is legendary: She was even listed in the Guinness Book of World Records as the “World’s Greatest Miser.”

Unfortunately, Green’s enduring legacy hinges on the “Witch of Wall Street” dichotomy: Discussions of her enormous self-made fortune are typically offset by tales of how cheap and mean she was. Though it’s tempting to dispel a few of these myths and paint a less-wicked picture of Green, doing so ignores the more relevant lessons we can learn from her. 

Here are five lessons we can learn from Green about investing and life.

1. Teach girls about business
American women would be much happier if they learned the principles of business in girlhood,[1] Green once told the Ladies’ Home Companion. Indeed, she credited much of her business acumen to lessons learned watching her grandfather run the family business while she was still a girl.

Green’s family made its fortune by owning a successful whaling fleet in New Bedford, Mass. In the first part of the 19th century, whale oil, especially oil from the massive sperm whale, was a hot commodity. It was widely used in lamps because of its bright, steady, smokeless flame, and it was used to make household items like soap and varnish. It could also be used as a machine lubricant because it maintained its density at high temperatures and resisted freezing.

When his eyesight began failing, Green’s grandfather Gideon Howland asked her to read him books and newspaper articles, as well as stock quotes, bond yields, and commodity prices. When young Hetty proved to be a precocious learner who asked insightful questions, he asked her to help him with his business correspondence, which she later said was how she learned her business methods.[2]

After Gideon Howland died in 1847, Green’s father Edward Robinson took over the whaling business, and Green became even more involved in day-to-day operations, including bookkeeping, inspecting shipments, and negotiating prices with merchants, clearinghouses, and suppliers. She also learned how to buy stocks and bonds at brokerage houses.

Business boomed in the 1850s, but the tide would soon turn for the whaling industry. Whale oil production peaked in 1857, and declined precipitously after 1859, when petroleum was discovered in Pennsylvania.[3]

Kerosene, which was derived from petroleum, was a superior lighting source in nearly every way. It was longer-lasting, did not give off an offensive odor when burned, and was easier to produce and source, which made it cheap. Whale oil, by contrast, was more expensive because it was harder to procure. For one, the world’s whale population had been decimated by centuries of hunting. It’s also fairly difficult to catch a whale (for more on this, read Moby Dick).

In 1865, five years before his death, Robinson divested the family’s whaling fleet and invested the money in a business that specialized in shipping goods via steamship from New York to San Francisco.

Through close observation Green gained a sophisticated knowledge of shipping routes and logistics, which, along with her keen understanding of balance sheets and financial statements, would give her a huge advantage when she later invested in railroads.

2. Go against the grain
“There is no great secret in fortune making. All you do is buy cheap and sell dear, act with thrift and shrewdness and be persistent,” she once reportedly said.

Sound familiar? Green’s investing philosophy would be echoed more than a century later by Warren Buffett, everyone’s favorite modern-day cheapskate billionaire. (Fun fact: Green even owned stock in New Bedford-based Hathaway Mills nearly a century before Buffett would buy his controlling shares of  Berkshire Hathaway (BRK.B) in 1965, according to Buffett: The Making of an American Capitalist by Roger Lowenstein.)

One of Green’s earliest contrarian investments was buying undervalued currency in the post-Civil War period known as Reconstruction.

Shortly after President Abraham Lincoln assumed office in 1861, the Battle of Fort Sumter broke out and the American Civil War began in force. The war proved to be longer, bloodier, and costlier than expected, and the government needed to find a way to finance it without taking out loans at exorbitant interest rates. In 1862, Lincoln and Congress passed the first Legal Tender Act, which authorized the issuance of US$150 million in United States Notes. They were called “greenbacks,” and they were not backed by gold, but rather by the full faith and credit of the U.S. government.

This was followed by the second and third acts, after which a total of US$450 million of greenbacks were in circulation. The value of these notes fluctuated depending on investors’ confidence in the country’s economic future. 

In spring 1865, Robert E. Lee and the Confederate army surrendered to Ulysses S. Grant at Appomattox Courthouse, ending the Civil War. The outlook for the country’s future was cloudy.

“With the Civil War now ended, some investors believed the country’s outlook looked rosy. Miners were uncovering vast deposits of gold, copper, and silver in the West, while huge numbers of people were taking advantage of the Homestead Act and settling the new land. In the East manufacturing was booming, more railroad tracks were being laid, and the transcontinental railroad would soon be hauling freight between the two coasts. It was a buoyant scene.

But as with the canvas of an artist that has changed his mind, a reverse image could be seen on the other side. The devastation of the South, the high debt caused by the war, and the disarray of the Union created a stormy picture. Many people viewed the country’s economy as doubtful. Seeing chaos around the corner, they worried about the stability of the government and refused to pay face value for its greenbacks. Instead, they rushed to gold.”[4]

As the value of the greenback sank lower and lower (at one point as low as US$0.50 on the dollar), Green scooped up more. Green was confident that the greenbacks would recover their value given time, and she was right: The Resumption Act of 1875 effectively put greenbacks on par with gold by allowing greenbacks to be redeemed at face value.

3. Do your homework
Green earned much of her vast fortune by making smart, well-timed railroad investments.

After the Civil War, railroad construction boomed. While the Northern states benefited from a complex railway network that connected major cities, the rail lines in the South were mainly short lines designed for hauling goods to local seaports. (This had proved to be a big disadvantage to the Confederacy during the war.)

Stakeholders were also keen to develop a railroad that went all the way across the country, linking the East and West Coasts. Before the establishment of the transcontinental railroad it was common to ship goods from the East to the West Coast by steamship, via the Isthmus of Panama (before the canal was constructed).

Recognizing the important role railroads would play in the nation’s future, Green invested heavily in them, putting her knowledge of shipping routes and trade logistics and her sharp analytical ability to work.

“Only a small group of investors had as much information as Hetty did on the railroads and their maze of lines. Her transatlantic connections, her insistent research, her in-depth questioning, and her constant reading, helped her decipher the complicated financial code and decide which railroads to invest in, and which to avoid. Some railroads were expanding, stretching their lines across lucrative territory. Others were laying useless track.”[5]

On May 10, 1869, a ceremonial golden spike was driven into the ground to mark the completion of 1,776 miles of track that made up the nation’s first transcontinental railroad, which united the country and changed it forever.

4. Keep a cool head
Green didn’t sweat sell-offs. In fact, she saw them as good opportunities to make more money.

In the first few years of the 20th century, the U.S. experienced an economic boom. Railroads and businesses borrowed money to expand, and investors borrowed money to buy stocks and real estate. The prices of financial assets kept rising, which induced people to buy even more. As demand for money increased, the cost of borrowing money rose.

At higher interest rates, however, many borrowers couldn’t repay their loans, so they were forced to sell off their assets to cover their loan payments. Things got worse when banks and trust companies, already under pressure from their own speculative loans and investments, were faced with bank runs by spooked depositors. Thus ensued the Panic of 1907.

Green was able to act as a major purchaser and lender during this time because she pre-emptively sold assets she believed were overvalued to reduce risk. In her own words, she “saw the handwriting on the wall,”[6] and converted every real estate deal she could close into cash.[7] This gave Green what Warren Buffett likes to refer to as “dry powder”: ready cash to scoop up assets at low prices during sell-offs.

“I buy when things are low and nobody wants them. I keep them until they go up and people are crazy to get them. That is, I believe, the secret of all successful business,” Green said.[8]

But she insisted that she was always fair in her dealings, in sharp contrast to the so-called “robber barons” of the age, who took advantage of the limited regulation at the time to engage in unscrupulous behavior to get rich at others’ expense.

“As rates rose, more and more of ‘the solidest men in Wall Street,’ she said, from ‘financiers to legitimate businessmen’ came to call, begging to unload everything from palatial mansions to automobiles.

”‘They came to me in droves,’ she recalled. ‘Some of them I lent money to, and some of them I didn’t. That was my privilege…. Those to whom I loaned my money got it at six percent. I could just as easily have charged forty percent. But never in my life, no matter what has been said against me, have I practiced usury. And no one knows it better than the wealthy men who have had business dealings with me.’”[9]

5. Stand your ground and be true to yourself (Haters Gonna Hate)
"I am in earnest, therefore they picture me heartless. I go my own way, take no partners, risk nobody else’s fortune, therefore I am Madame Ishmael, set against every man," Green once told a reporter. [10]

Being a woman put Green at a disadvantage as an investor and financier at a time when few legal protections existed to protect women’s interests or their assets. (Women would not even attain the right to vote in the United States until 1920, four years after Green’s death.) But she was not afraid to defend what she considered rightfully hers--either in court or by telling her side of business disputes to the press. To many this made her an oddity, to say the least.

“While her critics decried her as stingy and strange, the reality was that Green earned her reputation as much because she breached the boundaries of proper womanhood. Not only did she make enormous sums of money, she behaved like a man in doing so. … In an age when women of means took pains to dress fashionably and behave modestly and graciously in public, Green’s behavior was deemed totally unacceptable for a woman of her class. No one, not even her family and closest friends, denied that her behavior was often unconventional.”[11]

She would sometimes defend herself to reporters, who were always anxious to listen, knowing Green made good copy.

“I am not a hard woman. But because I do not have a secretary to announce every ‘kind act’ I perform I am called close and mean and stingy. I am a Quaker, and I am trying to live up to the tenets of that faith. That is why I dress plainly and live quietly. No other kind of life would please me.”[12]

Green’s father had taught her from a young age that wealth and property were a trust to be taken care of and enlarged for future generations, not squandered. Indeed, when she died in 1916, the New York Times reported that her death would likely have no effect on the stock market or any of the corporations in which she had invested, because she had so invested her huge fortune such that that “the inheritors, whether individuals or charities, would have no reason to disturb the investments.”

The same obituary, which ran on the front page of the Times on July 4, 1916, (sort of) praised Green for her uncompromising determination.  

  Source: The New York Times