I just finished reading two books, both non-fiction and each interesting in its own way, but as different as night and day. From one of them comes an investment idea.
The first, which I borrowed from my local library, was “Andrew Carnegie”, written by David Nasaw. It’s the most extensive biography yet of the man who started life as a poor boy in Scotland but grew to become the richest man in America.
Did I say extensive? At 800 pages, I can’t imagine what Nasaw left out. By the time I returned it, the book was well overdue. Nevertheless, it’s a great record of a life that was filled to the brim with both purpose and accomplishment.
Carnegie was born in 1835 to a poor but intelligent family in Scotland. His father was a loom-weaver with no notable business skills, and when the mechanical revolution replaced his handwork, the family emigrated to America, eventually landing in Pittsburgh. At the time, young Andy was 13 … and his formal schooling ended soon after.
But he never stopped learning. A local Pittsburgh man had opened his library to working boys on Saturday nights, and Carnegie became a regular borrower. Decades later the value he placed on that library became evident to the world.
By the age of 16, Carnegie was working as a messenger boy for a telegraph company, and by the age of 18 he had learned enough to become a secretary/telegraph operator of the Pennsylvania Railroad Company.
He soon became a protégé of Thomas Scott, who would eventually become the railroad’s President. He was promoted to superintendent of the Pittsburgh division. And then he started making real money; helped by a loan from his boss, he made his first investment in a railroad-related company.
Before long, he was named Superintendent of the Military Railways; during the Civil War, he helped open the rail lines into Washington that the rebels had cut, and he rode the locomotive that pulled the first brigade of Union troops into Washington.
And all the while he was investing, and broadening his focus from railroads to steel, and from there to iron ore and coal. He may not have learned about vertical integration in business school, but he certainly understood the value of it in real life!
By the time he was 26, Carnegie was one of the richest men in America. And when he was 37, he retired from full-time work. But he kept in contact with his managers, and continued to wield a strong hand. When it came to business, he usually got what he wanted.
By today’s standards, many of the investments that Carnegie used to amass his wealth would be illegal. Back then it was accepted that inside information was for the use of those who had access. And antitrust laws? The Sherman Act didn’t take effect until 1890.
The biggest black mark on Carnegie’s record is the Homestead Strike of 1892.
To simplify, after a period of inactivity–when the furnaces were being cleaned–Carnegie (through his managers) wanted to rehire the union workers at wages lower than they had previously received, a move that would make the mill’s steel more competitive. But the union refused, tempers increased, and Carnegie called in the Pinkerton forces.
Before long (it’s not clear who shot first), seven strikers and three Pinkerton employees were dead and hundreds more were injured.
Carnegie could have avoided the trouble by paying his workers more, but he was intent on increasing his share of the steel market … and believed the common people would only fritter away the extra money on drink or other unproductive pursuits. He truly thought he could do better work with the money. And by some measures, he did.
Giving His Money Away
He began giving his money away when he was 48 and he worked hard at it for the rest of life. Most notable were his gifts of over 2,500 public libraries. Of these, 1,689 were built in the United States, 660 in Britain and Ireland, 156 in Canada, and more in Australia, New Zealand, Serbia, the Caribbean, and Fiji.
On top of that, he gave $2 million to start the Carnegie Institute of Technology at Pittsburgh (now part of Carnegie Mellon University) – my brother’s a graduate – and the same amount to fund the Carnegie Institution at Washington, D.C.
He was a large benefactor of the Tuskegee Institute under Booker Washington for African American education. He established large pension funds for his former employees at Homestead. And he did the same for American college professors … a fund that has evolved into TIAA-CREF. He also funded the construction of 7,000 church organs.
In 1901, Carnegie sold his business holdings to J.P Morgan, who rolled them into the United States Steel Corporation, which continues today. The price was $480 million, equivalent to some $120 billion today!
And he kept giving his money away.
By 1911 he had already endowed five organizations in the United States and three in the United Kingdom, giving away over $43 million for public library buildings and close to $110 million for other worthy purposes. Yet ten years after the sale of the Carnegie Steel Company, he still had more than $150 million. So he founded his last charitable organization, and since all the obvious names had already been used, he named it Carnegie Corporation. During 1911 and 1912, Carnegie gave the Corporation $125 million, making it the largest single philanthropic trust ever established up to that time. After his death in 1919, the Corporation received an additional $10 million when the estate was settled. Since then, the initial endowment of over $135 million has increased in value to over $2 billion, and the Corporation has spent roughly $2 billion in nominal terms – 16 times its original endowment – carrying out its mission.
Among its focuses have been the library field, adult, continuing, and nontraditional education, strengthening of African universities as agents in national development, the higher education system of the United States, and cognitive development and learning of preschool children. In this sphere, the Corporation is best known for its long sponsorship of the educational television program, Sesame Street.
In short, Carnegie’s was a great life, full of both purpose and achievement, and his influence persists today.
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Taking a Different Path
The other book I read, which was given to me by my oldest daughter for Christmas, was “Autonauts of the Cosmoroute,” by Julio Cortazar, a Belgian-born Argentinian intellectual and author who landed in Paris when he was 37 and remained there until his death at age 69.
Written with his third wife, Carol Dunlop, a Boston-born woman who moved to Montreal during the Vietnam War and became a Canadian citizen, the book chronicles the couple’s adventures on the highway as they drove from Paris to Marseille in the summer of 1982. Normally, the 465-mile trip would take at least eight hours. But the pair chose to make the voyage more “interesting” by accomplishing the journey in 33 days, visiting two rest stops per day and never leaving the highway!
And so they did, sleeping in their red Volkswagen camper most nights and in motels a few times, dining at picnic tables and rest stop cafeterias, being re-provisioned by friends on a number of occasions, and writing about the absurd adventure on their portable typewriters as they went.
And what was the point? Ah, such an American question!
On the surface, the point was to experience a common event (driving from Paris to Marseille) in a different way. While for the average person, the main feature of that trip is the monotonous highway, for Cortazar and his wife, the highway itself was little more than a footnote; they spent over 98% of their time in the rest stops!
Below the surface, the book’s themes include the search for identity, some existential angst, and even a touch of surrealism … all highly valued by the French intelligentsia.
Functionally, the pair accomplished almost nothing; the result of their endeavors was the book, and nothing more. Nevertheless, the book, originally published in Spanish and only recently translated into English, was a good read, and I can imagine that back in my early 20s, when I could easily spare a month from real life, I might have done the same thing … though I couldn’t have written half as good a book.
But Cortazar was no young man at the time of the adventure; he was 67 years old. His wife, by contrast, was a young 36. Yet four months after the end of their voyage she succumbed to an unspecified illness … and two years later he was dead of leukemia.
So which book leads to the investment idea, the book by the dreamers or the book about the doer?
There’s no surprise here; it’s Carnegie, the doer. Because today’s idea is about steel and iron ore, once again in great demand by the world. For Carnegie, demand came from the expansion of the American railroad system. For this company, demand comes from the global building boom, particularly in Asia.
Like Carnegie Steel, this company is thriving because demand is booming, because it is vertically integrated (it wraps lots of different businesses around its core of iron ore and pellet production), and because it dominates its industry … it’s the world’s largest iron ore producer.
The company is Companhia Vale Do Rio Doce (RIO), and here’s what Michael Cintolo, editor of Cabot Market Letter, wrote about it recently.
“Rio Doce (the name means Sweet River) mines a huge array of other minerals and owns the rails, ports and ships to export them. The company also has joint ventures in coal, energy, steel and aluminum.
The big story here is the company’s connection to iron- and steel-hungry China and the other commodity-craving emerging economies of the world. RIO has been in a holding pattern since the beginning of October, trading in a range with support at 30 and resistance at 36-38. The stock and its small dividend look pretty attractive at this level; a break above 37 would signal the start of a new advance.”
Rio Doce may never be mentioned here again, but it may well appear in Cabot Market Letter again, as will many other top stocks with great fundamentals and high-potential charts. And that’s not the only reason you should take a look at this report. According to Hulbert, Cabot Market Letter was the sixth-best performer of all investment newsletters in 2007, with a gain of 37.5%. The secret? Expert market timing (which currently has the portfolio nearly 50% in cash), combined with stock selection based on a time-tested system that uses both fundamental and technical analysis. If you’re looking to build a diversified portfolio of top-performing stocks in the year ahead, I recommend a no-risk trial subscription.
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Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory