This is the first of a planned series of posts about people who make interesting (at least in my view) studies in the creation or destruction of wealth. I have chosen John D Rockefeller as the first subject for the simple reason that he amassed what in real terms was probably the largest personal financial fortune of the modern era. By some estimates, his inflation adjusted wealth exceeded US$200 billion - almost 4 times Bill Gates' current worth.
John D Rockefeller is, in a word, a controversial figure. There are things to admire and things to revile. Whatever else may be said for or against this titan of the American industrial age, the impact he had on business in America was unprecedented during his life and has not been matched since.
Born on 8 July 1839, John D Rockefeller started life poor. At the age of 16, Rockefeller gained paid employment as an "apprentice bookkeeper" in Cleveland. After a series of promotions, Rockefeller left to establish his own produce commission business in partnership with Maurice Clark. Business profits were invested in other local Cleveland businesses. In 1863, he made his first investment in the oil industry - specifically a small oil refinery. At that time in history, the oil industry was a chaotic place characterized by many small operators and intense price competition. Within a short period of time, Rockefeller's business interests had become focused almost exclusively on the oil industry and in 1870 Standard Oil was formed as a partnership. Apart from John D Rockefeller himself, Henry M. Flagler was the most significant figure in the transition of Standard Oil from a small partnership into an industrial giant that so dominated its industry that it lead the United States Government to introduce what is now known as "anti-trust" legislation.
Standard Oil's business methodology could be described (perhaps overly simplistically) as having two objectives. The first was the relentless reduction in costs (something it had in common with other industries of the time). The second was the systematic removal of competitors - either by buying them out or forcing them out of business. Rockefeller himself believed strongly that competition was waste and this appears to have been a key driver behind his pursuit of a monopoly in the oil industry. The relationship between Standard Oil and the railway industry (which spent decades destroying shareholder value through intense competition) is itself a fascinating aside to the Standard Oil story. By the late 1800's Standard Oil effectively held a level of pricing power that enabled it to dominate its markets in refining, transportation and distribution of oil within the United States. By 1911 Standard Oil effectively controlled an estimated 64% of the oil industry in the United States. The rise of Standard Oil was followed by a period of decades of political and public opposition that eventually cumulated in the 1911 Supreme Court decision that required Standard Oil to be broken up into 34 separate companies. It is an indication of the sheer scale of Standard Oil that several of the companies created by the break up were among the largest companies in the United States - including Conoco, Amoco, Chevron, Exxon, Mobil, Sohio.
Independently from his career as a business man, Rockefeller was a deeply religious man. He became a deacon of the Baptist Church at the age of 19 and, at an early age tithed 10% of his income to charity. Religious (baptist) and educational causes dominated his philanthropic endeavors. At a personal level, Rockefeller lived a simple life free of vices. He was noted for his abstinence and his generally active and clean lifestyle. Another point which stood out was that he married once only and generally lived a quiet life away from the society pages.
As an investor, the two most significant lessons I took from the story of John D Rockefeller were that anyone can succeed financially with a willingness to work hard, save money and to take the risk of investing their savings. The second is that there is considerable advantage in investing in businesses that are able to command a degree of pricing power.
For further reading: Titan The Life of John D Rockefeller, Sr by Ron Chernow.
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