Gould was “ a master architect of labyrinths ,” similar to Warren Buffett and George Soros today . In contrast to both Buffett and Soros , however , Gould has been pummeled mercilessly for his use of financial complexity and obfuscation . One of the criticisms levied against him is that he employed these tactics as a “ lone wolf ” on the hunt for his own interests , and those interests alone . But contrary to such criticisms , Gould actually formed close associations with colleagues that lasted his lifetime .
For example , it is noted above that Gould leveraged the relationships of his wide financial network to restore the UP ’ s credit . He obviously would not have had a wide financial network if he could not be trusted . As a case in point , Collis Huntington , who was one of Gould ’ s bitterest business rivals , praised Gould ’ s reliability : “ I know there are many people who do not like him … I will say that I always found that he would do just as he agreed to do .” In other words , Gould was a rational executive , based on the above definition .
5 : Humility
Arrogance has unfortunately been somewhat of a constant in business , and on Wall Street , across time . There are important exceptions to this , of course . For example , perhaps Buffett ’ s greatest example is that a person can be both an elite investor and a multi-billionaire without being personally arrogant . Similarly , and this comes as a surprise to many people , Gould was also remarkably humble .
First , and unlike many “ titans ” of both his age and ours , Gould lived a quiet , extremely private life unmarred by personal excess . He shunned high society , was devoted to his wife and six children , created an extensive personal library of books that he actually read and built the largest privately owned greenhouse in the nation . Second , his personal humility extended to his approach to corporate management . As the official history of the UP observed :
In meetings [ Gould ] never dominated discussion but let it drone on before expressing succinctly and precisely the point others had been groping for . He did not command or dictate but suggested politely . Far from being an imperious figure , he was content to dwell in the shadows and let others take credit . For a man consumed by
Poster advertising the grand opening of the Union Pacific Railroad .
ambition , he was strikingly unaffected by considerations of ego or vanity .
Humble managerial behavior helps to produce a positive work environment , which helps to attract and retain highly talented employees which , in turn , helps to increase the productivity of a firm . Productivity increases are important in any economic environment , but they are crucial in a turnaround being conducted during a depression following a major financial panic . Gould ’ s results at the UP prove this out , as explained below .
6 : Compounded Results
The ultimate measure of business and financial success is the compounded return or compounded annual growth rate ( CAGR ) that is generated . Judged by this criteria , Gould ’ s accomplishments at the UP measure up exceedingly well : the CAGR of the UP ’ s stock price from 1874 to 1880 , which was when Gould managed the firm , was 19 %. This return is impressive in-and-of itself , but all the more so when it is compared to the 7.5 % CAGR ( price-weighted ) of the New York Stock Exchange over the same time period .
To put this performance into context , it is important to note the following : First , and as noted above , the US economy was in a major depression from October 1873 — following the infamous financial panic — to March 1879 , per the National Bureau of Economic Research . This is the longest financial depression in US history ; however , broad-based financial distress likely extended beyond 1879 . According to economist and financial analyst Marc Faber , “ The deflationary epoch that followed the global crisis of 1873 was also poor for asset holders … many sectors experienced massive bankruptcies and poor business conditions — for example , canals and railroads in the US from 1873 to 1895 ” ( italics added ).
Second , there was no “ quantitative easing ” ( QE ) following the Panic of 1873 because President Ulysses S . Grant refused to debase the national currency to stimulate a recovery . As a result , Gould ’ s turnaround was operating against significant monetary headwinds .
Third , the federal government not only did not offer bailouts to distressed and failing firms at the time , but it also demanded the strict repayment of governmental loans from such firms . This is important because Gould left the UP after a successful six-year tenure when it became clear that he could not solve the “ financial albatross ” of government debt . Contrary to popular belief , the government bonds issued to help construct the UP were not a subsidy , but a loan . And given the size of the loan , the UP was actually the government ’ s largest debtor at the time .
Finally , the UP was one of the few railroads with a federal rather than a state charter , which made it directly beholden to the US Congress . The task of achieving a workout , or reaching a debt restructuring settlement , with various Congressmen proved to be too much for Gould , so he sold his UP shares to monetize the value that he created during his turnaround .
Lessons for Today
Benjamin Graham once stated , “ We have no right to reject the lessons of the past until we have at least studied and understood them .” This insight is particularly applicable to Gould , but it also applies to the railroad industry in general , and even to the UP itself . For example , in 2016 , journalist S . L . Mintz profiled the modern railroad industry , and one of his findings was that , “ For the eight quarters through December 2015 , most Class 1 railroads that returned capital to shareholders posted a negative buyback return on investment ”
26 FINANCIAL HISTORY | Winter 2021 | www . MoAF . org