The book “Business Adventures” tells about 12 exciting thematic achievements in the field of business, economics, and finance. The stories of these achievements relate to events and companies that you may never have heard of. But the lessons that can be learned from these stories are relevant to this day.
John Brooks is a journalist, writer, best known for his many years of contribution to The New Yorker, where he wrote articles similar to those presented in this book.
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Immerse yourself in the most influential economic and financial events of the last century
After reading this book, you will understand why Bill Gates said that the “Business Adventure”, which he received as a gift from Warren Buffett, is his favorite book of all time. After all, where else could he find out what the launch of the ugliest car in the world, the wink from the CEO of General Electric, and the collapse of the Piggly Wiggly supermarket chain?
These and other events described in the book reveal several major achievements in the history of American business, the consequences of which are still quite tangible. They paved the way for things like the end of insider trading, as well as the right of people to work for the employer they want.
After reading these twelve exciting and amazing essays, you will learn:
- How Wall Street almost destroyed Piggly Wiggly,
- Why meetings of shareholders of large companies usually turn into a full booth,
- And how the misunderstood gesture of the GE CEO brought him to court.
As the Crash of 1962 Showed, Investors Are Irrational People, and the Stock Market is Unpredictable
How much can you miss in three days?
Well, if you are a stock investor and fell into a three-day coma on May 28, 1962, you can wake up and no tangible changes will occur with your investments – but you can also oversleep all the chaos of the 1962 crash.
This three-day crisis perfectly illustrates how strange the behavior of Wall Street bankers can be and how much investors can be led by their mood rather than real facts.
On May 28, 1962, the mood on Wall Street was extremely gloomy after six months of the downturn in the stock market. There was a lot of trading that morning, and the central office did not have time to update stock prices since all this was done manually.
Investors panicked when they discovered that they could find out the true price of stocks only after a time span of about 45 minutes, during which the actual price fell again. Therefore, at that moment they were selling their shares, which entailed a new round of falling prices. As a result, a crisis occurred – more than $ 20 billion was lost in stock prices.
But emotions not only caused a crash – they also helped to restore the situation: investors remembered what each of them knew – the Dow Jones index, which showed the average value of the stock market, could not be lower than 500. Therefore, when the stock value approached this limit, the panic stopped, as everyone began to expect prices to rise up. Three days after the crash, the market has fully recovered.
After this outlandish event, many tried to find a rational explanation for him. But the only conclusion that the official representatives of the exchange came to is that the government should pay more attention to the “business climate” of the financial market – that is, the mood and expectations of its players.
This inherent irrationality leads to the unpredictability of the market. In fact, the only thing that can be predicted about the market for sure is a quote from the famous banker J.P. Morgan: “It will fluctuate.”
History Ford Edsel – a Great Example of a Failed Launch
Have you ever heard of the Ford Edsel?
Initially, it was supposed to be Ford’s flagship product in the late 1950s, but as a result, the car became not only one of the most disastrous products of all time but also secured the status of the ugliest car in the world.
How could a successful company like Ford make such a huge blunder?
Well, firstly, due to an unsuccessful market assessment.
In 1955, the American automobile market experienced a real riot. Family incomes increased, people became more and more interested in buying cars of the middle price category – a segment in which Ford was rather weak. And then the company began developing Ford Edsel.
Unfortunately, by the time Edsel was launched in 1958, the market had turned 180 degrees: there was an economic downturn and a sharp change in consumer tastes, as a result of which the attention of people switched to more compact and inexpensive cars.
The second reason for the failure was unrealistic customer expectations.
Ford spent $ 250 million on the development of Edsel, which was the company’s most expensive project at that time – in its advertising campaign Ford made a strong emphasis on this. This created a lot of noise around the project, so when Edsel was finally launched, consumers expected to see something beyond revolutionary. However, they were disappointed when they saw that the Edsel was the most ordinary four-wheeled car.
The third and final blow for Edsel was the disgusting build quality. Since Ford spent most of their efforts on psychological research in order to maximize the tuning of the car to the target audience, the company neglected to carefully work on the technical equipment of the car. Therefore, as soon as the product was launched, customers immediately discovered several malfunctions, from unreliable brakes to jerks during speeding.
And although the Edsel, in the end, was not the most useless car, it was still doomed to failure.
The federal income tax system should return to its state in 1913
Warren Buffett is One of the Richest People on the Planet, and Yet, He Admits That His Tax Rate is Much Lower Than That of His Secretary (Whose Income, Of Course, is Many Times Less Than His). Sounds Like a Wicked Joke?
Well, this is a perfect example of how unfair the American income tax system is. In order to understand how this is even possible, let’s look at how this system has evolved since its inception.
In 1913, after several decades of political debate and fears of slipping into socialism, the federal government began to introduce income taxes. The reason was that government revenue was stable and spending was rising.
Initially, the tax rate was low, and the wealthiest citizens were the main contributors to the treasury. But since then, this rate has been constantly growing, taxes are being levied on more and more layers of the population, and at the same time, more and more loopholes have appeared for rich people. Then the size of the income tax was quite high, and most of all its influence was felt by the middle class of the population.
Today’s tax system is not highly efficient.
For example, freelancers often stop taking new small orders in order not to receive more income, because from a tax point of view it is much more profitable than earning more.
Moreover, a complex system of loopholes has turned taxation into a real battleground. The internal tax service, which collects taxes, is forced to fight annually with a huge army of tax consultants and lawyers, whose profession allows you to evade taxes. This leads to a huge waste of human resources on both sides.
And unfortunately, tax reform is now practically unrealistic. Many presidents tried to simplify the tax code, but none of them succeeded. The modern system simply works for the benefit of too many too powerful rich people who will never give up their advantages, among which, for example, the fact that capital gains are subject to a lower tax rate than, for example, salaries.
So where is the solution?
The federal tax system must roll back to its state in 1913 – and make a second attempt.
Insider trading finally managed to curb after the incident in the Texas Gulf of 1959
Imagine that your uncle works for an oil company, and one day he calls you and offers to buy shares in his company, as they just discovered a new oil field, but will be announced only tomorrow. It looks like that if you buy shares, then, in fact, you will start to engage in insider trading, right?
Today it is, but it did not have to happen this way before the incident in the Texas Gulf.
In 1959, Texas Gulf Sulfur, a commodity company, hit the jackpot. Preliminary drilling tests showed that hundreds of millions of dollars in the form of copper, silver and other minerals are hidden underground.
People who knew about this find decided to keep silent about it, stealthily buying shares in the Gulf of Texas. The company’s management and other people who were in the know started buying shares while instructing their relatives to do the same.
When rumors spread that the company might have discovered something significant, a press conference was held in the Gulf of Texas, during which there was an understatement of rumors and the spread of misinformation – while management continued to buy up shares.
When the company finally announced its find, stock prices skyrocketed, and everyone who bought them before immediately got rich.
While this behavior is now considered unethical, even by Wall Street standards, then insider trading laws were hardly taken into account.
But after this incident, the State Securities and Stock Market Commission (SEC) came into effect: it accused the company of fraud and insider trading. Such an unprecedented bold move angered so many investors.
In the course of the trial, the court had to decide to what extent the results of the trial drilling could help determine the value of the find, and whether subsequent company press releases were published in order to deliberately mislead people.
In the end, the court passed a guilty verdict along with a statement that the company needed to be given the opportunity to respond at the right time to any news that could affect stock prices before insiders began selling them.
Since then, insider trading has been under control and Wall Street has become a little calmer.
Xerox History – a Success That Faded as Fast as It Originated
In the early 60s, an automatic copy machine became incredibly popular, and its developer, Xerox, suddenly became a market leader. But then, for several years, the company experienced significant difficulties. Let’s take a look at the three main phases of Xerox’s unpredictable history:
The first phase is an unprecedented success.
It was traditionally believed that people would not be interested in the process of documents, because at this moment they feel like they are stealing the original content. The process was expensive – the initial version of the apparatus worked only with special paper.
Therefore, when in 1959 Xerox released its first photocopier for plain paper, no one expected the product to be in such demand.
The founders even discouraged their friends and relatives from investing in the company’s shares. However, in just six years, Xerox revenue skyrocketed to $ 500 million.
The second stage is a period of stable success.
Xerox conquered the market so confidently that they began to engage in extensive charity. This is quite typical for those who achieve quick success: the company wanted to express its gratitude to those who helped it and use its position to gain public influence.
For example, Xerox became the second-largest investor in the University of Rochester, which initially assisted in the development of photocopying technology. The owners of the company also did a lot for the United Nations. In 1964, they spent $ 4 million on a television campaign in support of the UN after it came under public attack from right-wing politicians.
At the third stage, Xerox was forced to observe how quickly success can turn into a defeat. Shortly after reaching its peak of fame in 1965, Xerox faced serious problems. The company’s technological lead over its competitors faded, as they began to produce cheaper products. Moreover, new investments in research and development did not bring results – and the company had serious problems.
These three stages are a vivid example of how in any company you can observe both explosive growth and a decrease in results. Fortunately for itself, Xerox went through the third stage and is still successful.
How the New York Stock Exchange Saved a Brokerage Company to Avoid a Financial Crisis
In 1963, the brokerage company Ira Haupt & Co. ran into a problem. She did not have enough capital to trade on the New York Stock Exchange (NYSE) and her membership was subject to cancellation.
The reason for this predicament was the fact that a company that traded in raw materials made a fatal deal. She bought cotton and soybean oil, which was supposed to be delivered later, and used warehouse receipts as collateral to get a loan from a bank. The receipts turned out to be fake, but the oil actually did not exist. Ira Haupt & Co. turned out to be a victim of commercial fraud and was not able to pay off a huge debt.
After meeting with some shareholders, banks and NYSE representatives, it turned out that Ira Haupt & Co. it took $ 22.5 million to become solvent again. The situation was aggravated by the fact that the whole country was in a panic at that time: President Kennedy was just shot and the market was in a stagnation stage.
But the NYSE did not allow Ira Haupt & Co. to go bankrupt – she literally saved a brokerage company!
The NYSE feared that the bankruptcy of Ira Haupt & Co. during a national panic, it will make people lose faith in their investments, which will cause even more problems on Wall Street. They felt that the country’s prosperity depended on the survival of Ira Haupt & Co., therefore, together with NYSE member companies, they developed for Ira Haupt & Co. debt payment plan.
The NYSE allocated $ 7.5 million for this purpose. Together with other creditors, the exchange managed to save Ira Haupt.
It is unlikely that the NYSE will ever take such a step again, but at that time it really managed to prevent a financial crisis in the midst of a general panic.
Managers can blame their immoral or criminal actions on “communication errors”.
Nowadays, the company is at the center of a scandal, its employees claim that no one has done anything wrong and that the true culprit is “communication problems”.
For example, if a company discharges toxic waste into water, it is not out of greed, but because “the management failed to properly inform local managers about the new environmental strategy.”
One such case occurred in the late 1950s when General Electric (GE) carried out large-scale price-fixing. About 29 electronics companies entered into a conspiracy to fix prices for equipment worth $ 1.75 billion. Fixation costs the buyer at least 25% above the regular price.
When it turned out that GE was the main initiator of price-fixing, the scandalous case was brought to court and the Senate subcommittee. Despite the fact that some managers paid fines and received a term, top executives of the company were not charged.
Why did they get away with it?
They claimed that everything happened due to a communication error: middle managers misinterpreted their instructions. Apparently, at that time two types of policies were adopted at GE: official and hidden. If the leader gives the manager a task with a stone face – this is an official policy, which he must follow implicitly.
But if he winks at the same time, the interpretation remains at the discretion of the employee. Usually he should do the exact opposite of what was said, but sometimes you have to guess what the leader meant. And if you can’t draw the right conclusions, then this manager may have problems at all.
Because of this, despite the fact that GE had a policy prohibiting discussion of prices with competitors, many managers suggested that this policy exists only to avert eyes. But as soon as they went on trial for fixing prices, they realized that they could not blame the leadership.
This story is a good example of the fact that managers can really use communication problems in order to fend off responsibility for all kinds of violations.
The Owner of Piggly Wiggly, the World’s First Self-service Supermarket, Nearly Destroyed His Own Company in the Stock Market Battle
If you do not live in the south or midwest of the United States, you have hardly ever heard of Piggly Wiggly. One way or another, in 1917, its owner patented the concept of a self-service supermarket. It was the first supermarket with shopping trolleys, price tags for all goods and a cash register.
Piggly Wiggly still exists but is almost unknown due to the actions of its eccentric owner Clarence Saunders, who went to great lengths to combat financial speculation.
In the 1920s, the Piggly Wiggly network expanded rapidly throughout the United States. But when a pair of franchises in New York failed, some investors took advantage of this by launching a massive sale of Piggly Wiggly shares in order to lower their exchange rate (Bears raid).
The Bears Raid is a strategy in which investors make profitable investments if the price of shares falls, and then do everything in their power to bring down these prices. In the case of Piggly Wiggly, they claimed that the whole company was in trouble due to failed franchises in New York.
Saunders was furious and wanted to teach Wall Street a lesson: he began to buy up Piggly Wiggly shares with speculative goals, that is, he wanted to buy back most of them.
And he almost succeeded.
He publicly stated that he was going to buy all existing shares of Piggly Wiggly and, after he got into huge debts, managed to buy 98% of the shares. His actions raised stock prices from $ 39 to $ 124 per share: a disaster for the “Bear Raiders”, which faced huge losses.
However, the raiders managed to convince the stock exchange to grant them a deferral of payments. Saunders’ position was fragile due to debts and he ultimately suffered such great losses that he was forced to declare bankruptcy.
If Saunders had a little more influence on the stock exchange, you could shop now at Piggly Wiggly, rather than at major stores like Walmart.
David Lilienthal’s example: business savvy and a clear conscience can coexist
When a highly influential government official switches to the business world and uses his old connections in government to make money, many people can blame him for corruption.
But in the case of David Lilienthal, this charge would be inappropriate.
In the 1930s, Lilienthal was a regular civil servant in the administration of Roosevelt’s reformer president. Then, in 1941, he was appointed Chairman of the Tennessee Valley Authority, as the person in charge of developing and distributing low-cost hydropower in areas where there are no private suppliers.
Later, in 1947, he served as the first chairman of the Atomic Energy Commission, promoting the importance of the peaceful civilian use of atomic energy.
And when he finally left the civil service in 1950, he did not hide his motivation, saying that he wanted to earn more money to support his family and save money for his own retirement. After entering the private sector, Lilienthal showed himself well as a businessman.
His experience in the energy sector helped him develop a business in the mining industry and, since he wanted to experience all the pros and cons of entrepreneurship, he took the trouble of restoring the deplorable corporation of American Chemical and Mineral Corporation. He achieved success in this, as a result of which the company managed to avoid failure, and Lilienthal himself made a small fortune.
The new line of work also influenced his own point of view: he wrote a scandalous book on how important big business is to the economy and security of the United States. His former colleagues in-state power accused him of betrayal, but Lilienthal really wanted to figure out both sides of the coin.
In the end, Lilienthal decided to take the best of his experience and in 1955 founded the consulting company Resources Corporation, whose goal was to help developing countries to implement public programs at the state level.
This step proves that in fact, Lilienthal is an ideal example of an entrepreneur: his loyalty equally applies to both people and shareholders of the company.
Shareholders rarely use the power that they have at their disposal
Who Do You Think Are the Most Powerful People in America?
Theoretically, these should be shareholders.
Given the fact that they own the largest corporations in America, and huge companies have such enormous power in American society that many political scientists say that the United States is more like an oligarchic feudal system than democracy.
These large corporations are always headed by a board of directors elected by shareholders, which confirms the real power of the latter.
Once a year, shareholders gather for annual meetings in order to elect a board of directors, vote on domestic policy issues and learn from executives how the company is actually doing.
But these meetings, s a rule, are far from serious and worthy events – and you can imagine that this is actually a complete mess.
This happens because the management of the company does not feel that the shareholders are actually their bosses. They purposefully make it difficult for shareholders to get to meetings, keeping them away from the company’s head office. During meetings, they talk to their shareholders about the performance and future of the company, avoiding discussing real issues.
And such tactics work against most shareholders. The only thing that makes these meetings interesting is the participation of professional investors in them, who can organize really worthwhile debates.
One fun example is the AT&T shareholders meeting in 1965, when an investor named Wilma Soss scolded Frederick Kappel, chairman of the board of directors, and even advised him to consult a psychiatrist.
Professional investors such as Soss often own shares in many companies and thus want to hold them accountable for their actions without worrying about what is happening in the company. And in the case described, Soss simply wanted to attract the attention of women from the board of directors.
But trying to appeal to the conscience of indifferent investors is a thankless task: there is nothing more passive and obedient than small investors who regularly receive their dividends.
If shareholders were more attentive to what kind of power is in their hands, company leaders would not behave as they please.
Thanks to Donald Wolgemuth, you can change your employer, even if you know his business secrets
If one day you receive an attractive job offer from a competitor in your current company, you will surely accept it, won’t you?
In fact, your right to take this step has not always been so obvious, and you should thank the research scientist named
Donald Volgemuth for This – It Was He Who Set the Precedent, as a Result of Which You Have the Right to Work Wherever You Want.
In 1962, Wolgemut led the technical department of the aerospace company BF Goodrich Company. The space exploration market began to grow quite rapidly after the moon exploration, and Goodrich was the market leader in the production of spacesuits.
At the same time, the company terminated the contract for the now-famous Apollo project with its main competitor, International Latex. And when Volgemouth received an offer from International Latex to work on the prestigious Apollo project with a larger reach and higher salary, he accepted it without delay.
But when Volgemouth informed his superiors that he was leaving, they were afraid that he might divulge the secrets of the production of spacesuits. Due to this fear, and also because Wolgemuth signed a confidentiality agreement, BF Godrich sued him.
When this case came to trial, two key questions of an almost philosophical nature arose:
- If someone has never violated the agreement or expressed such intentions, can measures be taken against him based only on the assumption that he can do this?
- Is it possible to prohibit someone from holding a position that can push him to commit a crime?
The judge’s decision was truly innovative: despite the fact that Volgemuth could obviously harm Goodrich by disclosing confidential information, he could not be found guilty in this case preventively, so he could freely get a job at International Latex.
This decision set a precedent for resolving further such disputes, which was a great victory in the protection of the rights of employees.
In 1964, the Pound Was Attacked by Speculators – and Even the Union of Central Bankers Could Not Protect It.
In the 1960s, the British pound was perhaps among the most prestigious world currencies, due to its long existence and high value. Therefore, when the pound was attacked by financial speculators in 1964, central bankers from around the world considered it their duty to protect it.
The roots of this attack lay back in the 1944 Bretton Woods Conference when the world’s leading economies decided to create an international monetary exchange system where all currencies could be exchanged at fixed rates. This meant that in order to maintain these fixed rates, the governments of the countries had to take an active part in what was happening in the foreign exchange market by buying or selling currencies.
In 1964, economic difficulties arose in Great Britain: the country faced a serious trade deficit. Currency speculators were confident that the UK would not be able to maintain a fixed foreign exchange rate, and would be forced to devalue the pound. Consequently, they launched a massive attack on the pound in order to bring down its value.
Faced not only with the threat of the depreciation of the pound but also with the threat to the entire international monetary system as a whole, a broad alliance of the organizers of financial and monetary policy, led by the US Federal Reserve, began to take protective measures. They began to buy the pound in order to counteract the pressure that was produced on the pound in order to devalue it.
At first, it seemed that the tactics worked and that the first waves of attacks were repelled. But speculators showed incredible stamina, continuing their attacks for several years.
Finally, in 1967, the banker’s alliance could no longer afford to buy the pound, and the UK was forced to reduce the value of its currency by more than 14%.
Looking back, the war for the pound was just the first sign of the serious shortcomings of the Bretton Woods system, which finally collapsed only 4 years later – in 1971.
So, the main idea of the book:
The Origins of Many Modern Mechanisms of the Financial Market and the Foundations of Business Ethics Can Be Traced to Historical Events.
For example, the struggle of one person with his employer could have a cardinal effect on the further development of social movements for the rights of workers.
- In any company, explosive growth and sudden recession are possible. Be prepared to survive.
- A successful product launch is half the success. Do not repeat the story of Ford Edsel.
Why You Should Read “Business Adventures”
- To get insights about most significant events from the recent history of the economy;
- To avoid the mistakes of your predecessors.
- To be able to transfer good business practices into your projects
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