Novel Investor

Compounding investing wisdom...

Lessons in Bull Market Grift from the 1901 Promotion Boom

by Jon

Stock markets have a long history of fraud and grift during bull markets. Grifters find it easier to entice would-be “suckers” when everyone seems to be making a fortune but them. One such example took place at the start of the 1900s that has played out in some form or another in every bull market since.

Stock promotion was legal at the turn of the century. Promoters pumped new companies in order to raise money in exchange for a cut of the total take. In some cases, their cut was upwards of 40%. A promoter could walk away with over $100,000, on a $1,000,000 stock offering, after paying promotional fees for advertising and articles pumping the stock.

The 1901 stock promotion boom was the byproduct of a speculative bull market. Two years early a merger mania began as Wall Street power players combined railroad and industrial companies into regional and national monopolies. Speculators saw an opportunity to get rich quickly in the millions of new shares created by the mergers.

The mania briefly sputtered with the North Pacific panic before going wild in a stock promotion boom in 1901. Over the course of two years, hundreds of new companies were created and promoted to unwitting investors. Continue Reading…

What Century-Old Companies Can Teach Investors

by Jon

The average life of a company is shrinking. Today, the average age of an S&P 500 company is 15 years. That compares to 67 years in the 1920s. Yet, outliers exist that defy that trend.

One such group of outliers is known as the Henokiens. To be a Henokien, a company must be founded over 200 years ago and still controlled by the founding family. There are 48 member companies in the group.

What does it take for a company to survive over 200 years? Lessons from Century Club Companies answers that question. The author, Vicki TenHaken, studied companies over 100 years old to see what characteristics set them apart from all the rest.

Interestingly, her results carry some crossover lessons to investing. It starts with having a mission statement.

Live the Mission Statement

Long-term success is the byproduct of a company successfully working its mission. Every century-old company has a written mission statement that led the company to where it is today. Continue Reading…

Lawson’s Panic: A Lesson in Market Prophecies

by Jon

Human nature strives to know what happens next in an uncertain world. When it comes to investing, market prophets, forecasters, and tipsters are always ready to provide it. But the results rarely pay off. No better example exists of the risk of following their advice than Lawson’s Panic.

Thomas Lawson was born in 1857. He got his start at a banking house in Boston, at age 12, after quitting school. Not long after he gained attention from speculating in stocks. He was given more important work at the bank and learned the ways to manipulate the market. He had a natural gift for it.

However, Lawson found his true calling after being charged with turning around the failing Rand, Avery publishing company. He started by publishing books that no other publisher would touch. But how would he make people aware of them?

He advertised.

Lawson saw the enormous possibilities in advertising. He demonstrated then, as he has many times since, that he could make a comfortable livelihood as an advertising expert… He organized an advertising bureau, a novelty in those days, and announced that this bureau would undertake to direct the advertising of large manufacturing concerns… This variety of advertising is very common nowadays, but it was decidely original when Lawson thought of it.

Lawson also quickly figured out how advertising could be used in his speculative efforts. Continue Reading…

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