Lessons from Cornelius Vanderbilt By Lewis J. Walker, CFP(R)

In a throwback to the robber baron invectives of the early 19th century, Bernie Sanders rails against the “billionaire class.” Cornelius (Commodore) Vanderbilt (1794-1877) was considered the first of the “robber barons,” those who pundits claimed employed unethical and monopolistic practices and political influence to amass enormous wealth.

Newspapers ran cartoons picturing Vanderbilt as a leech, sucking the blood of the hapless poor. Yet, as commentator John Stossel points out, the Commodore, as he was nicknamed, was neither a robber or a baron. (John Stossel, Give Me a Break: How I Exposed Hucksters, Cheats, and Scam Artists and Became the Scourge of the Liberal Media; HarperCollins, 2004). Vanderbilt was born poor and had little education. But in the early 19th century, somewhat like the influence of technology today, a transportation renaissance was the wave of the future, and young Cornelius saw the future.

Born on Staten Island, New York, he quit school at age 11 to work on his father’s ferry. At age 16 he started his own ferry service with a small sum of borrowed money, and other boatman in jest started calling the lad “Commodore.” The name stuck. Hard work, perseverance, foresight, and willingness to take calculated risks paid off as Vanderbilt expanded his water trade and shipping empire.

Did he get rich by cheating people, as some suggest is rampant on Wall Street and in business today? . No, notes John Stossel. “Vanderbilt got rich by pleasing people. He invented ways to make travel and shipping things cheaper. He used bigger ships, faster ships, served food on-board. People liked that. And the extra volume of business he attracted allowed him to lower costs. He cut the New York-Hartford fare from $8 to $1. That gave consumers more (value) than any 'consumer group' ever has.”

One of Vanderbilt’s famous quotes underscores his penchant for giving consumers a better deal: “I have always served the public to the best of my ability. Why? Because, like every other man, it is to my interest to do so.” No business, whether a small closely-held enterprise or a behemoth corporation, can last long unless it serves consumers and clients in an ethical manner, delivering value and satisfying customers. Ethical practices and common sense and due-diligence on the part of buyers are the best regulators, not the heavy hand of government.

The steam engine, applied to water and rail transportation, was one of the most disruptive yet wealth building advancements of the 1800s. Vanderbilt studied steam technologies and designed improvements for his own ships, later applying acumen to railroads.

He bought his first railroad in 1847. A video clip on www.history.com shows an aid telling Vanderbilt, “Shares of New York Central are dropping fast.” Asked Vanderbilt, “How low?” “Twenty dollars,” said the aid. “Buy all you can,” commanded the Commodore. Few people recognize that Vanderbilt never built a railroad. He became rich seizing on opportunity as others panicked, buying small, inefficient, and undercapitalized companies, and stringing them together to build large, connected networks.

John D. Rockefeller (1839-1937) was depicted in cartoons as a snake. Starting with a small refinery business (kerosene was an important commodity), in 1870 Rockefeller formed Standard Oil of Ohio. Standard Oil grew into one of the largest shippers of oil and kerosene in America. Rockefeller was tagged as a monopolist by the government and jealous competitors, of which he had many. But, notes Stossel, “No one was forced to buy his oil. Rockefeller enticed people to buy it by selling it for less. That's what his competitors hated. He found cheaper ways to get oil from the ground to the pump. This made life better for millions. Working-class people, who used to go to bed when it got dark, could suddenly afford fuel for their lanterns, so they could stay up and read at night.”

Does this sound familiar? Politicians and competitors rag on Wal-Mart and other large corporations, yet consumers flock to certain sellers because they provide goods and services at prices deemed attractive. The more things change, the more they stay the same.

Today we see the same elements of “creative destruction” in the oil patch and energy infrastructure. Like a Vanderbilt, Rockefeller, or J. Paul Getty, who built much of his fortune buying distressed companies, investors with vision and willingness to assume risk will find bargains as debt-burdened or cash-strapped enterprises are forced into liquidation. Private equity firms like the Blackstone Group and large institutions are taking advantage, as can individual investors willing to buck the tide of pessimism now creating opportunities.

History doesn’t always repeat, but it rhymes.

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Lewis Walker is President of Walker Capital Management, LLC. Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative and investment adviser representative of SFA which is otherwise unaffiliated with Walker Capital Management, LLC.

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