• October 16th, 2019

    ​Capitalism’s Winners and Losers

    Every era has the handful of companies that “can’t fail.” They dominate the economy and the stock market so powerfully that people can’t imagine them losing muscle. But they do, sometimes slowly, and sometimes spectacularly. Capitalism has winners and losers.

    When I was growing up in Rochester, New York, the county was the 20th richest in the US by per capita income. Today, it clings precariously to a low rung. Rochester still has vibrant sectors, but it has never recovered from the downfall of Eastman Kodak and loss of 27,000 Kodak jobs in a city of 200,000. The tax base plummeted and the city is a shadow of its former self.

    Companies do not always collapse as Kodak did, caught unaware by technological change even though Kodak first invented many of the technologies other companies killed it with, such as the digital camera. Companies get big, fat and complacent. They rise and fall.

    One measure of success or failure is market value. “Market value” is what the stock market says a company is worth on any given day. You take the number of shares of stock and multiply them by the stock price. Say Hotel Marfa has 100 million shares of stock and the stock price is $20. The market value is 100,000,000 times $20, which equals $2 billion. On the stock exchanges, that is considered small. Apple’s market value is $1 trillion, over 500 (!) times Hotel Marfa’s. Market values rise and fall with the business performance and popularity of the companies.

    If we look at the companies with the greatest market values over time, we see starkly that capitalism has winners and losers. Look at this snapshot of the top companies by market value in the US every ten years from 1980 to today:

    IBMTech and services11 9
    EXXON (EXXONMOBIL BY 2000)Energy322110
    SHELL OILEnergy6
    GENERAL ELECTRICDiversified holding company10315
    PHILLIP MORRISTobacco and food 4
    BRISTOL-MYERS SQUIBBPharmaceuticals 6
    MERCKPharmaceuticals 79
    WAL-MARTRetail 866
    COCA-COLAConsumer products 10
    PFIZERPharmaceuticals 3
    CITIGROUPFinance 4
    MICROSOFTSoftware 731
    AIGInsurance 8
    INTELTech 10
    APPLEConsumer tech 22
    BERKSHIRE HATHAWAY (WARREN BUFFETT)Diversified holding company 45
    PROCTER & GAMBLEConsumer products 10
    GOOGLE (ALPHABET)Tech (online advertising) 76-7
    CHEVRONEnergy 8
    AMAZONOnline retail, cloud services 3
    FACEBOOKOnline advertising 4
    JPMORGANCHASEFinancial services 8
    JOHNSON & JOHNSONPharmaceuticals and consumer products 9

    These are stark reminders of capitalism’s ruthlessness.

    • Only one company on the list in 1980—ExxonMobil—is in the top ten thirty-nine years later in 2019.
    • No industry dominated in more than one period. (Oil and gas dominated in 1980, then drug companies in 1990, tech, insurance and banking in 2000, a mix in 2010, and a massive shift to online businesses by 2019.)
    • Only five businesses—General Electric, Wal-Mart, Microsoft, and ExxonMobil—appeared more than twice!

    General Electric was in the top ten at four of the five points and is crashing and burning today. Wal-Mart grew huge on retail in physical stores, but today it’s displaced in the top ten by an online retailer, Amazon. Up and down, in and out they go. That’s capitalism. Given enough time, no business remains on top.

    I have no crystal ball, but today seems in many ways like the late 1800s and early 1900s, when the concentration of wealth and business monopolies ruled. President Theodore Roosevelt’s administration led to breaking up of those powerful monopolies. The Justice Department and the Federal Trade Commission are rumbling today about the power of companies such as Facebook and Google, for example, and privacy violations. Whether through antitrust or competition and new technology, today’s giants are likely to be cut down to size, while others take their place. It’s a question of time.

  • September 6th, 2019

    ​Trump, the Fed, and the Lemonade Stand

    President Trump regularly calls out the Federal Reserve Bank for its interest rate hikes from 0.5% to 2.5% during his presidency. He fears that rate increases could bring a recession, jeopardizing his reelection bid. They could and it might, but it’s largely beyond his control.

    To start, the law assigns the Federal Reserve Bank two jobs, which are to keep both unemployment and inflation low. It has one tool, the ability to set interest rates for banks to borrow from the Fed. Cutting Fed interest rates makes it cheaper for banks to borrow from it and lend. This “creates money,” because the Fed is the “lender of last resort.” It can lend no matter what, which is crucial in bad times. More lending and borrowing—more credit—fuels economic activity, which lowers unemployment.

    Plus, the law makes the Fed independent of the three branches of government, and traditionally presidents leave it alone except when deciding whom to appoint to the Federal Reserve Board of Governors and then select as chair and vice chair. Trump is not following tradition (surprise!), blaming his own appointee Chairperson Jerome Powell for raising rates and threatening the current expansion, low unemployment, and high stock market.

    This is how it works. Say that an enterprising student in Marfa (where I live) starts Shorthorn Lemonade Stand, Inc. Business is good, so she wants to expand from one stand in front of the City Hall to another by the Courthouse (with permits, of course). She can either save up profits and wait until the day Shorthorn has enough cash in its checking account to set up a new stand, or she can borrow to do it all now. Borrowing is a bet that extra income (income minus expenses) from the new stand will more than cover the loan payment.

    The company can use the borrowed money to purchase lumber and paint, hire more salespeople, buy more lemons, sugar and cups, and advertise in the influential Big Bend Sentinel today. That stimulates the economy. This is how one loan, in the hands of good businesspeople (not all are, because capitalism has winners and losers), multiplies each dollar, which economists call the “velocity of money.” Loose credit—low interest rates making it cheap to borrow—fuels growth and expansion through a faster velocity of money.

    But when an economy heats up, more money chases fewer goods and services. Everyone is doing well, they all want to spend their money, and it’s basic economics that when demand is higher than supply, sellers can increase prices. That’s inflation. This is where the Fed, in the classic phrase, must be the chaperone who takes away the (spiked?) punchbowl (low rates) just when the party’s (booming economy) getting started. Tight money—higher rates making it expensive to borrow—restrains growth and expansion. No new Shorthorn Lemonade salesperson is hired, no supplies ordered, no new lumber and signage purchased. The velocity of money slows. This is what scares Donald Trump. Higher rates could slow any growing inflation, sure, but it could kill the economic party and hurt his reelection chances.

    Presidents like Trump should save their breath (as if that will happen). The Fed has a reputational interest in acting independently and doing its best to reduce inflation. The system needs to have confidence it will do its job regardless of political pressure. Sure, Chairperson Powell did do an about face in January and has kept rates steady all year, but it was certainly based on the mountains of data he and his hordes of economists review—not the president.

    Despite claims otherwise, presidents don’t really have any control over the economy—except for example when pursuing dangerous tariffs, as Trump is doing. Rates rise and rates fall. This is the Fed doing its job. Politicians like to complain for their short-term benefit, but long-term investors don’t have to care. We know that lemonade stands as a whole survive easy money and tight.

  • August 3rd, 2019

    ​The Queen of Wall Street’s Advice for Women

    “It is the duty of every woman, I believe, to learn to take care of her own business affairs.” – Hetty Green

    The “Queen of Wall Street.” The first female tycoon. The Wizard of Finance. The richest woman in America. The richest woman in the world. And, due to her austere and never-changing black dress—perhaps due to being a Quaker—the Witch of Wall Street. This was Henrietta (“Hetty”) Green (1834-1916).

    It would be a great story if Hetty Green started with nothing and died quite likely the richest woman in the world, with a fortune of $2.3 billion to $4.6 billion in today’s money, but she had a major head start. Born in New Bedford, Massachusetts, she was lucky that her father owned a whaling firm and also profited from trade with China. Because her mother was often ill and her father away on business, she lived with her grandfather and aunt from the time she was two years old. She inherited fortunes from both of them and later from her father.
    Hetty Green as a young woman
    By the time she was six, she read all things financial out loud to her grandfather, whose eyesight was failing. According to Wikipedia and other sources, she became the family bookkeeper at 13, and “accompanied her father to the counting houses, storerooms, commodities traders and stockbrokers. In the evening, she read him the news.” This was indeed a prodigy in money.

    Green multiplied her inheritances substantially. She invested in railroads, real estate, and mines, and also was a mortgage banker, lending not only to business but also at times to New York City. She was a contrarian in the mold of Baron von Rothschild and today’s Warren Buffett, explaining “I buy when things are low and nobody wants them. I keep them until they go up and people are crazy to get them. That is, I believe, the secret of all successful business.”

    She was notoriously stingy, perhaps because of her Quaker background of thrift and saving. She tried to have her son treated for his leg at a free clinic, and when refused, went to other doctors, but in the process his leg did not heal, and it had eventually to be amputated (they apparently remained close and she spent her last months living with him). On a far less serious note, she developed a hernia in her later years but used a stick against it rather than have surgery. (Yikes.). She preferred cold water and was said to do all sorts of miserly things, but it is possible that the more extreme tales—searching all night in a carriage for a two-cent stamp, for example—were told in the way people today tell stories about celebrities. Nevertheless, not for nothing did the Guinness Book of World Records peg her the “world’s greatest miser.”

    A favorite poem of hers included, “To live content with small means…” Accordingly, she did not have a large house or hang out with the rich. In fact, she was a quiet philanthropist, donating regularly and generously, again likely due to her Quaker upbringing. This trait passed on to her daughter, who though unlike her mother enjoyed her money, still donated 99.69% of her own $200 million (in 1951 dollars) estate to colleges, churches, and hospitals – all but $1.38 million.

    Everyone should follow Hetty Green’s advice to women: “It is the duty of every woman, I believe, to learn to take care of her own business affairs,” and “A girl should be brought up as to be able to make her own living…Whether rich or poor, a young woman should know how a bank account works, understand the composition of mortgages and bonds, and know the value of interest and how it accumulates.” (emphasis added)

    These are not hard concepts, yet many parents—let alone their children—don’t know them. This can mean dependence on others, who may not have our best interests at heart. A saying in Green’s time was, “I’m not Hetty if I do look green,” which at the time meant “I’m not rich but I’m also not naïve.” Spot on.

    Sources for this article include Wikipedia,,, and items cited therein, from which I’ve lifted freely.

  • June 29th, 2019

    My First Stock

    When I was 12 and quite the geek (what’s changed?), I would lie on the carpeted living room floor and read the stock tables in the newspaper, focusing on companies I knew and whose products I used. Kodak was number one, because my father worked there, but there were other Rochester, New York, powerhouses such as Xerox. My father, who had been an economics major waaaaaay back and watched my stock market fascination with interest, suggested we take $100 and buy some stock.

    This seemed like a good thing to do. Kodak stock had in effect made a friend of my mother’s rich. Mom mentioned sometimes that “Aunt” Cathy’s father had been George Eastman’s lawyer, which proved fruitful for him and his daughter. She lived with her husband in the Virgin Islands, which sounded quite romantic, and they didn’t work, which sounded ideal. Why not me?

    Kodak had made many Rochesterians wealthy, but Xerox was the feisty new kid on the block, the fast-growing “high tech” company of the time. It introduced the Xerox 914 copier in 1959, which went from zero to $60 million in annual sales in 1961, and then to over $500 million in 1965. This insanely explosive growth naturally sent the stock flying. My parents’ friends, the Nobles, had invested in Xerox early. Like Aunt Cathy, they didn’t work either.

    But what to buy? We already were invested in Kodak through my father’s job and stock, and no way would a Kodak family in Rochester buy Xerox stock (and vice versa). Fortunately, I was pretty aware of candy and cars. I chewed Wrigley’s, favoring Juicy Fruit and Spearmint. That was comfortable and familiar. Where we had once owned Buicks, my father had come to favor Fords. We had an old sea green Ford Falcon, which needed an oil pan heater in the frozen north winter to start in the morning. Always a fan of the underdog, I decided on Ford.

    My two shares of Ford most certainly did not make me rich, not least because I later sold them for college. The stock rose 345% from then to today—over 47 years—for a mere 2.7% a year. But there was so much more. If I had kept the stock and all its dividends, $100 would be worth $3,440, a much better 7.8% annually:

    Keep adding zeroes: $1,000 becomes $34,400, $10,000 grows to $344,000…and so on. This is how a little money becomes a lot, and this is just little old Ford, which hasn’t exactly lit the world on fire (though unlike General Motors or Chrysler, it did not go bankrupt). Ford’s history shows that while it’s great to buy and “hope” for a higher stock price, it’s even better if the company pays you dividends in cash while you wait—and if you save and invest those dividends.

    It’s not always right to “buy what you know.” Kodak eventually went bankrupt—twice!—and the stock was worthless. Xerox is a shadow of its former self. Both failed to capitalize on their other technological advances. On the other hand is my friend’s mother, who kept buying stock of Seattle area companies Microsoft, Amazon and Starbucks, because she saw their presence all over town and used their products and services. Nice. But if you have a long-term view, you don’t need to buy those famous stocks, which have been like lottery tickets, to do well. Even with a Ford, time is the greatest friend—along with regular dividends—of someone wanting to invest savings for the future.

    Lead photo by Markus Spiske from Pexels.

  • May 31st, 2019

    When Your Time is Your Own

    Photo by Monica Silvestre from Pexels

    A long time ago, I met a wonderful older woman in South Carolina and asked her that most American of ice-breaker questions, “What do you do?” She replied gently, “My time is my own.” Not being from the South, I had never heard that before. It was thoroughly charming—and enlightening. In just five words, she said it all.

    To me, “my time is my own” means freedom to choose how to spend it, which usually comes after a lifetime of working for The Man (or Woman). One person may babysit the grandchildren. Another plays golf (I’ve never understood how much you can actually do that, but whatever) or another sport or devotes time to a hobby. Some may volunteer at a church, homeless shelter, food bank, or other community setting, or enter local politics. Others will travel. Most people will combine some of these.

    The key is that someday, most of us probably want to decide how we spend our time, not have it dictated by our employers. It is a fact that despite the industry of “follow your dream” and “do what you love,” which are definitely good pieces of advice, these are for the most part first-world luxuries, and even then, rare (which makes them luxuries). And ask anyone who has done either of those what is entailed, and the answer will include many falls and picking oneself back up again.

    It's Wonderful

    Plus, for those who have children, they become the focus of parents’ lives. Jobs become jobs, all about making enough money to feed, clothe and educate children, not some kind of magic path to self-fulfillment. Most jobs are not exciting, spiritually enhancing, or full of challenge and opportunity. Some are, sure, but what I’ve seen is that if we can do them with enjoyable people and provide a useful good or service, that’s pretty darned great. Those aren’t easy to find, either, but they make any old job into a pretty good job.

    I’m not arguing for settling or telling young people the “hard truth,” far from it. (What do I know, anyway?) It’s more that work isn’t everything, and family (or any other non-work pursuit) often is. They are often the dream and what one loves, though truly hard work, but not a paid job. Thus, retirement, when “our time—including what we used to spend at work—is our own,” is when the kids are gone, the job is (or more likely, jobs are) done, and eldercare is likely complete. For most people, this may be the time to pursue things that were not possible before. We may not need to work but decide to do so. Our time is our own.

    How much time will we have? Not being God (surprise, I know), I can’t say. Life expectancy from birth isn’t a great indicator because of all the things along the way. However, if we make it to the traditional retirement age of 65, there is going to be a lot more time than people used to have. When Social Security came into being the 1930s, most people had physically demanding jobs, and their bodies just didn’t last much more than 65—if that. But today’s 65-year old woman will on average live to 89 and man 87 (women are of stronger stock, no surprise there). People didn’t expect retirement, or for long. It’s concept that has come with longer lives. And with so much time on average ahead of us, much more money is needed. This requires planning long in advance, when money can have a long time to grow. To have one’s time be one’s own is not free, but the sooner one starts preparing for it, the cheaper it becomes.

    Tom Jacobs is a partner with Huckleberry Capital Management, a boutique investment advisory firm serving clients in 25 states and 3 foreign countries from offices in Marfa, TX, Silicon Valley, CA, and Asheville, NC. You may contact him at 432-386-0488 and