I recently read The “first tycoon” – a story about Cornelius Vanderbilt (review is here) and this led the wonderful Amazon algorithm to recommend a book about Jay Gould – a contemporary railroad / telegraph tycoon who is better known as a ruthless stock market operator / manipulator.
Robber barons that define early 20th century are actually glorified in today’s history in that they are known as champions of specific industries they led – some of the most notables being:
John D. Rockefeller: oil refining industry
Andrew Carnegie: Steel
J.P. Morgan: Finance
James Duke: tobacco
Cornelius Vanderbilt: railroad
While the term “robber baron” is certainly derogatory, Americans tend to view above individual champions of respective industries with respect – which I think they somewhat deserve as they laid down the foundation of American industrials – which allowed America to skyrocket to the global leadership and American dream – many were immigrants who have created enormous wealth through hard work, break-through, innovation, and ruthless deal making.
However, there is one individual who is always viewed negatively and that is Jay Gould – a completely self-made financier who started with nothing, moved to New York for fur trade, and made reputation as stock market operator/trader/manipulator, but truly created wealth through the businesses he controlled through stock ownership.
Without solid understanding of business fundamentals, you simply can’t manipulate stock prices – you could end up holding a bag and it always requires solid due diligence. My key takeaway from learning about Jay Gould is that he was an astute master capital allocator who was actually more like modern venture capitalist than a public market investor and leveraged his reputation / public perception as a master stock price manipulator to capture control of the businesses that he sought.
Stock market manipulation is not an honorable activity for sure – however, we must know that it was legal activity at the time (although morally frowned upon) that many tycoons engaged in stock price manipulation to acquire assets that they wanted. I certainly don’t think it is the right thing to do – it was just an effective tool for corporate control in late 19th century.
Below I lay out my view on 1) why he was so vilified and 2) key business lessons
WHY WAS JAY GOULD SO VILLIFIED?
Jay Gould was not the most social businessman – he was a big family man who was devoted to his wife and family. He heavily relied on his business partner James Fisk for all things related to external communication and relationship building – for example, Fisk was instrumental to messaging to the press during Erie War (Gould/Fisk’s fight against Vanderbilt for control of Erie Railroads). In a very strong partnership, Fisk and Gould were perfectly complementary – Gould was all about analytics and planning, and Fisk was all about managing relationships and getting information.
However, Gould/Fisk’s operations tended to always be against the entrenched industrial moguls or those that became much more powerful – like Vanderbilt, who didn’t let them into their social circles (including yacht club) and did not hesitate to talk negatively about Gould/Fisk to the press.
Gould never cared about his perception and actually used it as one of his strengths in his stock market operations – in a sense, he turned it as one of his weapon to move the market and actually carefully managed it to a point where he also donated anonymously (partly due to public disparagement as well).
With Gould having no intention of correcting public perception and influential business moguls disparaging him to the press, Jay Gould’s image could only get worse and all the public records that remain reflect that.
With that said, there are many things to learn from Jay Gould’s life – I lay them below:
MANAGE PERSONAL REPUTATION CAREFULLY
Reputation, whether it is respect, awe, or fear, was a critical intangible asset that Jay Gould owned and used effectively for his business maneuvers. His stock operations were against the largest industrial tycoons in the fastest growing industries at the time.
His capital base was limited, but he was able to effectively execute on his plans because of his reputation – he had many followings on the Street and used brokers and press effectively to “leak” information about his trades to push the stock prices up and down as he liked. Many investors followed his move because they believe that Jay Gould would help them make money.
In the book, it turns out that Jay Gould didn’t win (despite public view) many times, but Jay Gould worked hard to lead public to believe he is always winning – even hiding anonymous charitable activities or making sure his losses were not publicized (which the public would have loved to devour).
He was feared and being feared is certainly not my taste. Regardless, reputation of an individual (like brand of companies) is a critical intangible asset that we often forget to utilize or ignore.
TAKE A BIG PICTURE VIEW AND EXECUTE DECISIVELY
Jay Gould once actually cornered the gold market in the United States – yes, the GOLD market. It is not just one company, but gold prices of the United States as an individual. This is unthinkable in today’s market – BUT he could do it because of specific understanding of the situation at the time, including seasonal specie outflow and gold transportation across the Atlantic ocean, in addition to the supply and demand. While it turns out to be not very profitable, it solidified Gould’s reputation as a master financial market operator.
OWN STRONG BUSINESSES IN HIGH QUALITY/GROWTH INDUSTRIES AND CONSOLIDATE THEM
He positioned his business ownership for high growth – railroad and telegraph. Transportation and communication were nascent industries at the time, but Jay Gould saw enormous opportunity and leveraged stock market operations to take control – even wresting control of Western Union from William Vanderbilt.
Importantly, he continued to add more railroad and telegraph companies under his control and consolidated them – with consolidation, they became more powerful and obviously profitable as market leading businesses.
While he is known as a financier, he was more of an operator who spent A LOT of time on his personal railroad car to travel around his railroad – checking employees and conditions of the system – all of which allowed him to identify targets and eventually own those targets through effective stock operations.
HAVE A STRONG FOUNDATION WHERE YOU CAN RECHARGE AND PURSUE PERSONAL INTERESTS
Lyndhurst served as a second home and a place of resting for Jay Gould (his main residence was on Manhattan) – he had his own arboretum and took care of it while not thinking about businesses or stock market. This place served as not only as a relaxing place, but also where he thought of many plans for his businesses or stock market operations.
Obviously I can’t own a getaway place – too expensive, but moving to a place with a separate room for me to pursue my personal interest (including this blog!) the first time through covid19 actually turned out to be a fantastic decision. It did come with higher costs (~$400 per month), but this is a place where I can be just pensive or just read a book peacefully while sipping coffee – in the morning, during the day, or evening or do whatever I want (including doing nothing).
CONCLUSION
Just like mispriced securities due to misunderstanding of investing public, there are many people whose lives are misunderstood – Jay Gould was one of them.
I invite you to learn more about Jay Gould’s life! The link to the book can be found below!
Who else in history do you think is widely misunderstood? Please share below!
