Investing Lessons From the Wicked Witch

Stories of the great investors can be inspiring, exciting and informative, and anytime you get a group of traders and investors together tales of the great ones often get told.

There are stories about Jesse Livermore, Paul Tudor Jones, George Soros, Richard Dennis, Bernard Baruch and other legends of the Street who amassed incredible fortunes through their endeavors in the markets.

There is something to learn from all of them, but the best lessons related to investing can be learned from a figure out of Wall Street’s past who no one even seems to talk much about: Hetty Green.

If you don’t know who Hetty Green is you might be surprised to find out she was once the richest woman in the world.

She made the majority of her money in stocks, bonds and real estate, but no one ever speaks of her anymore.

Maybe it’s because she was a woman who won what was then a man’s game.

Maybe it’s because she lives in the early 1900s and has since fallen into the pages of history.

But I suspect that Hetty Green’s relative anonymity has more to do with something else. Something far more primal than her gender alone.

Truth is, she was a thoroughly unpleasant person to be around. She was often referred to as the Witch of Wall Street… and for good reason.

She once took a shot at a lawyer with whom she was quarreling. A shot, like from a gun.

When her son injured his leg, she tried to get him treated at a free clinic instead of paying for a doctor, and he eventually lost the limb to gangrene. Remember, she was probably the richest women in the world at the time.

And she kept apartments all over New York City, moving on a regular basis to a new unheated flat every few days to avoid the tax collector.

She was a piece of work, but she was also a brilliant investor.

A Simple, Effective Strategy

Green received an inheritance from her father of about $7 million. But as a woman she was only entitled to the income from the trust that managed the money, rather than the whole sum itself.

No matter.

She turned that stake into over $100 million (about $2 billion in today’s dollars) over her lifetime. When she died in 1916, she was the richest woman in the world.

Her investment philosophy was simple.

She made loans, usually secured by real estate or some other collateral at reasonable interest rates, and purchased railroad bonds that she felt were of high quality. This was her day-to-day investment strategy during the good times.

While all this turned a tidy profit, the real secret of her success came at market extremes.

She told the New York Times in a 1905 interview, “I buy when things are low, and nobody wants them. I keep them until they go up and people are anxious to buy.”

Fans of Warren Buffett will likely recognize the sentiment behind that line.

During the panics of 1857, 1873, 1893, and 1907 she stepping in as the buyer of last resort, snapping up stocks, bonds, apartments, movie theaters, cemeteries — whatever people needed to sell at any price.

Hetty Green would then simply hold these investments until folks were once again anxious to buy and would pay a premium price for them.

She hoarded cash so that she had the money to act when an extraordinary opportunity developed in the financial or property markets.

She kept a list in her head (she was afraid if she wrote it all down in fear that someone would steal it) of the prices she was willing to pay for various businesses or properties. If a market dislocation or corporate event caused the asset to fall to that value or less, she was in a position to act and would strike quickly.

She also kept a list of what she calculated was the value of all her holdings. When someone offered to pay more than whatever price she considered fair value, she sold. Hetty was not emotionally attached to her investments and if she could sell for more than she figured something was worth she was happy to do so.

Everyone on Wall Street talks about buying low and selling high but Hetty Green is one of the very few that had the ability to execute that strategy over an extended period.

She did not view herself as a speculator, once saying: “More money is made in the end by an oversupply of caution than by indiscriminate recklessness.”

Buy Low, Sell High

That’s exactly correct and a big part of how we approach markets at Choose Yourself Financial.

We pay an extraordinary amount of attention to valuation and make sure that there are powerful social, economic and demographic trends in place that will drive demand for the products our companies sell.

We are advocates of collecting cash until a fantastic opportunity with a high probability of long-term gains presents itself.

Hetty Green was a disagreeable woman and was a notorious cheapskate. While I probably do not wish to emulate those part of her character, studying her investing career has made me a much better investor.

Tim Melvin

Written By Tim Melvin

As a 30-year veteran of the financial services and investment industry Tim Melvin served as a broker, advisor, and portfolio manager. He’s combined this nearly three decades of experience with a love of value investing in order to help investors worldwide to multiply profits and build their nest eggs. As an avid value investor, Tim...