Financial History 143 Fall 2022 - Page 15

her children . She also trained them from an early age in the art of frugality and the importance of a strong work ethic .
Mrs . and Mr . Hetty Green
The Greens returned to the United States soon after the Panic of 1873 . By the start of the 1880s , the economy rebounded , and a flood of foreign capital drove massive overbuilding of railroads once again .
In the early 1880s , Edward Green had developed a solid reputation on Wall Street , but he had become overconfident . In 1884 , Green had invested most of his personal fortune in the stock of the Louisville and Nashville Railroad ( L & N ), and he also used margin debt to leverage his position . In the spring of 1884 , the United States experienced yet another financial panic . Simultaneously , the president of the L & N confessed to a massive fraud . The collapse of the L & N stock pushed Edward Green into insolvency .
Initially , Hetty may have viewed her husband ’ s failure as no more than a disappointment , but it became unforgivable after the sequence of events that followed . At the time , both Hetty and Edward held their securities in custody at the private bank of John J . Cisco and Son . Hetty also held $ 557,000 in a cash account . The problem was that the Panic of 1884 also hit the bank hard . Sensing trouble , Hetty
Skepticism , Persistence and Patience : The Soul of the Value Investor
“ Before deciding on an investment , I seek out every kind of information about it . There is no secret to great fortune making . All you have to do is buy cheap and sell dear , act with thrift and shrewdness and be persistent .”
— Hetty Green
During the Gilded Age , British investors were easy marks for American stock promoters . This led to repetitive cycles of manias , frauds , panics and crashes . The cycle typically began with the discovery of a disruptive innovation . Attracted by the growth prospects , British investors purchased securities aggressively and drove valuations to absurd levels . Most securities ultimately proved to be of little value , and when the inevitable market shock arrived , investors withdrew their capital in a similarly indiscriminate manner . Disgusted by their losses , British investors pledged to never invest in American securities again . At this point , American investors scooped up securities in the few viable companies that remained for pennies on the dollar . In effect , Americans ended up owning their infrastructure without having to pay for it .
Collection of the Museum of American Finance
A crowd gathers on Wall Street during the Panic of 1907 . Hetty Green played a little-known , though important , role in stemming the panic alongside J . P . Morgan .
Hetty Green was one of the few investors who never fell victim to this cycle . She instinctively embraced the concept of “ margin of safety ,” which Ben Graham later cited as a cornerstone of value investing . She also left little to chance . When evaluating the prospects of potential investments , her due diligence went far beyond that of most investors at the time .
www . MoAF . org | Fall 2022 | FINANCIAL HISTORY 13