Read The Very, Very Rich and How They Got That Way Online
Authors: Max Gunther
“A country without a mission cannot survive as a country. There may be many ways of creating that mission, and many groups will play their role, but I want to talk about the proper role of industry. Its proper role, I believe, is to make a new kind of product – something people have not thought of as a product at all. When you’ve reached a standard of living high enough for most people, where do you turn next? It seems to me there is only one place to turn. Industry should address itself now to the production of a worthwhile, highly rewarding, highly creative inspiring daily job for every one of a hundred million Americans.”
So that management would know it had a promise to keep, Land also outlined his aspirations at a company Christmas party.
“We are going to make our new factories,” he promised, “the first factories in the world that are designed so that machines work for people instead of people for machines. What we are after in America is an industrial society where a person maintains at work the full dignity that he has at home. Now, I don’t mean anything silly – I don’t mean you’re all going to be happy. You’ll be unhappy – but in new, exciting and important ways. You’ll fix that by doing something worthwhile, and then you’ll be happy for a few hours. Alternatively happy and unhappy, you will build something new, just as you do at home in the family.
“You are often unhappy about your children. But you are proud of them. You wouldn’t give up the splendid years of misery involved in raising a child. Well, building a job should be like raising a child.”
***
Edwin Land was dreaming a number of dreams when reporter Bello talked to him in 1959. Most of the dreams have since come true.
The most important dream was that of developing a cheap, simple, workable system for instant color photography. Polaroid did that in the early 1960s. By backing up the invention with an aggressive marketing program, the company moved up to run neck and neck with its giant rival, Kodak, in yearly sales.
Kodak is no longer the undisputed leader in the industry. As this book goes to press, both companies’ sales and earnings are suffering from recession ailments, and both their stocks are trading on the Big Board at prices well below their highs in the bull markets of the late 1960s. Nobody on Wall Street cares to predict which company will forge ahead faster when the next bull market moves in. As one broker says, “They’re both number one.”
At the height of the bull market in 1968 and 1969, Land’s and his family’s holding of Polaroid stock were worth over half a billion dollars. The stock’s price dropped sharply from its peak, but not nearly so sharply as the prices of some other glamour stocks such as Ling-Temco-Vought (chapter 15). At the lowest ebb of the 1970 bear market Polaroid was down from the neighborhood of $140 per share to the neighborhood of $80. Considering that many glamour stocks were smashed down to a quarter or even a tenth of their bull highs, Polaroid’s performance wasn’t bad at all.
Edwin Land, today in his early 60s, is still fantastically rich. His amazing company is still growing. It is entirely conceivable that by the time Land elects to retire, his fortune will have risen to more than a billion dollars.
5 Reprinted from the April 1959 issue of
Fortune
magazine by special permission. Copyright © 1959 by Time Inc.
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There is a recurrent theme in the lives of the very, very rich. You must have noticed it, and will go on noticing it, on our tour through the gallery. Almost every one of these immoderately wealthy men began his career against a background of loud jeers. Whatever he was trying to do, said all the experts with great confidence, couldn’t be done.
Edwin Land was assured that it was perfectly ridiculous to think of making a camera that would develop its own pictures. James Ling’s nutty idea that he could sell his little contracting company’s stock to the public gave rise to guffaws all over Texas. Hollywood laughed uproariously at Howard Hughes’s foolish investments in movies. And on and on it goes.
Evidently it takes a peculiarly stubborn kind of mind to become one of the great rich. You not only need to have an idea; you also need to have supreme faith in that idea. The faith must be strong enough to stand up for years against jeers, guffaws and pessimistic head shakings.
It is almost a certainty that there are unknown men walking the streets today who, but for a lack of that stubborn faith, might have become hundred-millionaires. Such a man might have had a grand fortune-building idea last year or last decade. He allowed experts and non-experts to talk or laugh him out of it and now nobody knows his name. A day will probably come when some other man will be clobbered by that same idea, will maintain his faith in it and will rise to earn a place in some future list of the very, very rich.
This will be an interesting point for you to ponder if you ever conceive a fortune-building idea. The point is made neatly and concisely by writer-philosopher John L. Kent in the following article from
Success Unlimited
magazine. This magazine, you may recall, is published by that grand old success teacher, Clement Stone.
by John L. Kent
If you’ve sometimes made a hasty judgment or expressed an opinion that later turned out wrong, and if you’ve wished you never said it, don’t feel bad. The world’s biggest thinkers, scientists and industrialists have similarly said things for publication they later wished they could erase from the printed page. The comments were usually pessimistic.
Of course, there is a logical explanation. Psychologists and other social scientists say that anything new upsets our routine thinking. So we unconsciously reject new ideas and new devices.
There is no doubt that the caveman who first invented the wheel was met with a derisive “It won’t work!” from his fellow cavemen.
Most inventors and other creative people expect some negative reaction. But they are always shocked to meet opposition from experts.
When the invention works successfully or the discovery is proved out in practical application, these experts – often respected scientists and important businessmen – wish they had never said anything. But it is too late. Because of their position and prestige, their words had been recorded. In the black print of newspapers and science journals, their statements are available for all to see forever in the future.
For example, Dr. Vannevar Bush, a leading American engineer-scientist, testified before a congressional committee in 1945 that the proposed 3000-mile, high-angle rocket equipped with a nuclear warhead should be “left out of our thinking.” Ten years later the intercontinental ballistics missile made its appearance. It has a nuclear warhead.
Possibly the greatest number of wrong statements were made by important people about the airplane. Some said it would never fly. Others, who later conceded that it could fly, still thought it would be of little use. For example:
In 1870 Bishop Milton Wright declared that “flight is reserved for angels. To think anything else is blasphemy.” If that name rings a bell, it should. Bishop Wright was the father of Orville and Wilbur.
At about the time the Wright brothers were experimenting with their primitive airplane, a noted American astronomer-mathematician, Professor Simon Newcomb, expounded on the impossibility of flight. In a major technical essay he wrote,
“The demonstration that no possible combination of known substances, known forms of machinery and known forms of force can be united in a practical machine by which man shall fly long distances through the air seems to the writer as complete as it is possible for the demonstration of any physical fact to be.”
In 1910, after watching an air show, Marshal Ferdinand Foch, the French military leader, said, “All very fine for sport, you know. But the airplane is of no use to the army.”
In 1922 Assistant Secretary of the Navy Franklin D. Roosevelt said that “it is highly unlikely that an airplane, or even a fleet of them, could ever successfully sink a fleet of navy vessels under battle conditions.”
As late as 1939 Rear Admiral Clark Woodward said that “as for sinking a ship with a bomb, you just can’t do it.” Two years later: Pearl Harbor. . .
The long road traveled by Thomas Edison in perfecting and making practical electric light was strewn with often caustic comments by the experts who saw only failure. One editor of a large metropolitan paper, upon learning that his paper had published an optimistic article on Edison’s experiments, reprimanded the feature writer with “Don’t you know it has been absolutely demonstrated that that kind of light is against the laws of nature?”
Perhaps the editor had little faith in the future, but one would think that a fellow scientist would be more optimistic. But such, alas, was not the case with Professor Henry Morton, president of the prestigious Stevens Institute of Technology. In 1897 he protested against the enthusiasm shown by other scientists in Edison’s efforts, saying, “everyone acquainted with the subject will recognize it as a conspicuous failure.”
The development that has done most to change our way of living – the automobile – has been ridiculed as much as the airplane, which was being developed at about the same time. The mere idea of a self-powered vehicle was laughed at – even by presumably knowledgeable people:
Alexander Dow, president of the Detroit Edison Company for whom Henry Ford was chief engineer at the time he started his experiments with the auto, offered Ford a promotion to plant superintendent if he would cease tinkering with the automobile. Said he, “I don’t object to experiments with electricity; electricity is the coming thing. But gasoline – no!”
Chauncey Depew, a leading railroad executive and head of the New York Central System from 1899 to 1928, warned a relative not to invest $5000 in Ford stock because “nothing has come along to beat the horse.”
The experts who doubted the auto and the airplane have their counterparts in more recent experts who doubted that space travel would be possible. Consider, for example:
A top English astronomer (who shall remain nameless, as he is still with us) predicted in the summer of 1956 that man may never get into space and that “space travel is utter bilge.” Soviet Russia rocketed
Sputnik One
into the sky a year later.
Just as the Soviets were getting
Sputnik One
ready for its daily 15 orbits around the earth, a top executive of one of the largest aeronautical firms in the United States (who shall also remain nameless, as he is still living) predicted that manned space flight would not be achieved before the year 1990. Five years later John Glenn orbited the earth in a spacecraft made by – you guessed it, the executive’s own firm!
So if there are times when you could have . . . [bitten] your tongue over a few badly chosen words, you may take solace in the fact that others in high place have made similar mistakes. What you will never know, however, is how many opportunities you missed because you reacted in such a manner. Reflect on this and you’ll no doubt think back to times when “you wish you’d never said it!”
6 Reprinted with permission from the September 1970 issue of
Success Unlimited
, America’s leading Success Magazine, 6355 Broadway, Chicago, Illinois 60660. Copyright © 1970. Further reprint rights reserved.
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You hear the same conversation over and over again in bars clear around the world. Somebody tells an anecdote about a rich man in whose wake he has been tossed, or the TV set in the corner reveals some trivial intelligence about a tycoon and his yacht and his expensive lady friends. The men hunched over their drinks begin to speculate about how it would feel to be rich. Then they laugh at each other for entertaining such grandiose and fantastic thoughts. Finally they sink softly into conforming platitudes. They assure each other that it would be foolish for
them
to strive or hope for wealth.
“You gotta have money to make money,” says the guy at the end of the bar.
“Yep,” says somebody else glumly, “them as has gets.”
Everybody else murmurs and nods. It is agreed unanimously that sage words have been spoken.
The fact is, of course, that these comfortable old bits of folk wisdom are sheer nonsense. They are mainly an excuse for not trying. With few exceptions, the immoderately rich men we’re visiting in this book started with nothing or next to nothing – started in conditions of poverty in some cases. Their lives amply disprove the ancient wisdoms. The truth is that monumental piles of money can be made by any man, whether he has money to start with or not.
It is undeniably true that money begets money – or can be made to beget it, given sound management and a pinch of luck. But it need not be one’s own money. If you have but a little of your own, you can use other people’s.
The technique of using other people’s money is so common and so well thought of among the very rich that it has been dignified with capital initials: Other People’s Money – OPM for short. Most of the men you’re meeting in this golden gallery have used OPM at one time or another in their lives. Many of them used it in the very beginning to lift themselves out of poverty or lowly employee status, to launch themselves on the first mile of the long, hard climb. You’ll find OPM cropping up again and again, in various forms and with various applications, as we saunter about the gallery. But the man who best illustrates the technique is the man we’re now about to meet, one of the very, very richest of the rich, Daniel Keith Ludwig.
Ludwig began as an ordinary paycheck earner like you and me. He ended with a fortune that has been estimated as high as three billion dollars. My own calculations put him in the neighborhood of one billion dollars. (Somehow there doesn’t seem to be much difference between the two figures. Both make the mind reel.) He did it mainly by using OPM.
We can illustrate the value of OPM with a simple and familiar example. Let’s say you have $10,000 to invest in real estate. You find a spot somewhere on the edge of an expanding town, an area where real-estate values are rising by, let’s say, 25% every couple of years.
All right, how do you put your money to work? You can take the cash route: You find a plot of land that is on the market for $10,000, and you plunk your money into it. Two years later you sell out for $12,500. You’ve made 25% on your money.
That’s pretty good, but it could be a lot better. Instead of taking the cash route, you use OPM. Instead of a $10,000 plot of land, you find a $40,000 house. You put your ten grand in as a down payment on the house and borrow the remaining 30 grand from a bank under a standard mortgage arrangement.
Now let’s see where you end. After two years the house has appreciated in value by 25%, just as the plot of land did. The house is now worth $50,000. You sell out, pay off the bank and walk away with $20,000. Instead of making a mere 25%, you’ve doubled your money by using OPM.
The illustration is oversimplified, of course. It omits considerations such as interest, taxes and brokerage fees. But no matter how you cut it, the OPM route clearly carries you farther than the cash route.
The disadvantage of the OPM route, of course, is that it involves a greater degree of risk. If the bottom drops out of the local real-estate market while you’re in the midst of your gambit, the OPM route leaves you saddled with a burden of debt. Either you carry this debt until the market improves or you sell out at a loss. With the cash route you escape this kind of problem. But, as we’ve already noted and will note many more times in this book, it is virtually impossible to grow rich without taking risks.
The stock market’s so-called margin system is another familiar illustration of the use of OPM. Under certain conditions, in buying listed stocks, you’re allowed to borrow part of the purchase price from your broker. The stock market‘s margin rules are strict, and not for decades has it been legal to borrow as big a percentage of a stock’s price as you can borrow to buy real estate. Still millions of investors habitually buy on margin. They obviously believe even a little OPM is better than none.
Daniel Ludwig is a man who would agree with their philosophy. Let’s look at his remarkable career.
He is a highly secretive man, this Daniel Ludwig. He lives quietly in a Manhattan penthouse, from which he generally walks to his office a few blocks away. He is in his middle 70s, somewhat crippled by an old back injury, and as he makes his slow and painful way along the sidewalk, all alone, he might be taken for an elderly pensioner out for a breath of air. He seldom talks to anybody on his daily jaunt and is particularly curt with reporters who occasionally try to accost him along his route. He hasn’t talked to reporters for years.
Even when he does talk to them, his habitual secrecy keeps him from revealing everything. He fails to mention, or perhaps deliberately hides, all kinds of information, from the important to the relatively trivial. Back in 1957 he granted to
Fortune
reporter Dero Saunders what the magazine said was the first press interview in Ludwig’s whole career – and even then he seems not to have abandoned his lifelong reticence. Saunders reported, for example, that the twice-married Ludwig had no children of his own. In fact, he had a daughter by his first marriage. Important? Hardly. Yet the peculiar little inaccuracy illustrates Ludwig’s temperament. As Dero Saunders himself wrote somewhat wryly in the 1957 report, “Ludwig’s most notable characteristic . . . is a life-long penchant for keeping his mouth shut.”
He still keeps it shut today, and so do his aides. A reporter phoning Ludwig’s New York headquarters will be airily told by the operator there is no Daniel Ludwig in the company – at least not on her list of telephone extensions. Further inquiry will reveal that a shadowy figure answering to that name does occasionally drop in, but nobody admits knowing exactly who he is, what he does or how he can be reached.
Yet Dan Ludwig patently does exist. His footprints can be found all over the world.
He owns what is probably the world’s biggest private shipping fleet – bigger than those of either Stavros Niarchos or Aristotle Onassis. The fabulous Greek shipping tycoons make considerably more splash than Ludwig and are far more colorful, but in sheer fortune building Ludwig towers high above them. His fleet approximates five million deadweight tons and includes the five or six biggest oil tankers ever built.
Ludwig also owns outright, or is the major shareholder in, a string of savings-and-loan companies; a large collection of hotels, office buildings and other real-estate ventures in the U.S. and overseas; coal and iron and other natural-resource developments from Australia to Mexico; petroleum and petro-chemical refineries in Florida and Panama.
He has amassed this huge collection of businesses in an atmosphere of eerie silence. For many years he and his second wife lived in an unostentatious house in the commuter town of Darien, Connecticut. “We almost never saw them,” says a neighbor. “They never came to cocktail parties around town or anything like that. Nobody knew exactly who they were. I always thought he was some kind of bank executive – you know, a salary guy, maybe forty grand, nobody very important.”
Ludwig in his prime was a tall, lean, ruggedly handsome man. He was born in June 1897 in South Haven, Michigan, a small lakeside community. His father was a real-estate broker and speculator, comfortably successful but not rich.
Young Daniel was fascinated by boats and ships. At the age of nine he found a sunken 26-foot diesel boat that had been abandoned as not worth the salvage costs. He bought it from the owner for $25, which he amassed by working and by borrowing from his father. He raised the boat and spent an entire winter repairing it. The following summer he earned some $50 by chartering the boat. This was his first experience in the shipping business, and he enjoyed every minute of it – particularly the knowledge that he had come out with a profit.
His father and mother separated when he was in his early teens, and he went with his father to Port Arthur, Texas, a shipping town in which the father had found some real-estate opportunities. Still intrigued by ships, young Dan dropped out of high school to go to work on the waterfront. He drifted around for a few years, ending at a marine-engine plant from which he was sent out to help install ship engines in various ports around the country. He liked the work, discovered he was good at it and began moonlighting, installing and repairing engines on his own. At the age of 19 he had more private contracts than he could handle; so he quit his job. It was the last job he would ever have.
Over the next 20 years there were many months when he wished he did have a job. Unlike some of the other men we’ll meet in this gilded gallery, Dan Ludwig did not enjoy high success at an early age. He bounced from one waterborne venture to another, buying and repairing and selling and chartering ships, and sometimes he made money and sometimes he lost. He seldom had much cash to spare, was almost always in debt and on several occasions teetered on the edge of bankruptcy. His problems were aggravated when, at the age of 29, he was injured by a gasoline explosion in the cargo hold of an aging tanker. “The reason he was down in the hold,” says a former executive of one of Ludwig’s companies, “is that two crewmen had been overcome by fumes and Dan went down to haul them out. For the rest of his life after that explosion he was tormented by pain in his back. But if you asked him how he got hurt, he’d just say, ‘Oh, I was in an accident.’ A lot of people assumed it was an automobile crash. That was the kind of guy Dan always was – never said much about himself.”
It was in the mid-1930s, when the late-blooming Ludwig was nearing the age of 40, that he finally began building the foundation of his present monumental fortune. That was when he discovered OPM.
He had borrowed money often before, of course, starting with his first ship-salvage venture at age nine. “But,” says a Chase Manhattan Bank officer, “it hadn’t been what you could call creative borrowing. He hadn’t learned how to use other people’s money as a lever to increase his own economic horsepower.”
Ludwig arrived at his success formula in two main steps. The first step came when he wanted to borrow some money to buy an old general-cargo ship and convert it into an oil tanker. (Oil transport paid more than dry cargo.) He went to various banks in New York. They looked at his frayed shirt collar and asked what he proposed to put up as collateral. He had to admit he owned but little in the way of worldly goods. He did have one elderly tanker afloat, however – the one in which his back had been hurt – and it occurred to him that he might be able to make a deal involving this ship.
“He came to this bank,” says the Chase man, “and told us he had his tanker chartered out to some oil company. The monthly charter fees he received were just about equal to the monthly payments he’d have to make on the loan he wanted. So he proposed to assign the charter to the bank. The bank would then collect the charter fees directly from the oil company, and that money would go toward paying off Ludwig’s loan.”
To many bankers it seemed like a crazy setup. Yet it was in reality as safe for the bank as almost any small-business loan. Ludwig alone might not have been a four-A credit risk, but the oil company’s credit was good. The bank could assume that, barring unforeseen economic catastrophes, the oil company would faithfully keep up its charter payments on the tanker. Even if Ludwig’s new ship-converting venture sank, as had some of his others, the bank would still keep getting its money as long as the old tanker and the oil company stayed afloat. In effect, Ludwig was boosting his own feeble credit rating by using the oil company’s.
The bank made the loan on that basis. Ludwig bought the old general-cargo ship he wanted, converted her to an oil tanker, chartered her out, used her to get another loan on the same basis and converted still another dry-cargo ship to oil.
This went on for a few years. As each loan was paid off, Ludwig came out with free and clear title to a ship. The charter fees for that ship stopped flowing to a bank and began flowing into his pocket. His cash position, his credit rating and his shirt collars improved rapidly.
And now he was struck by a still more intriguing idea. If he could borrow money on an existing ship, why couldn’t he also borrow on a ship not yet built?
This was his second giant step in learning the uses of OPM.
Ludwig’s new proposition went something like this: He would design a tanker or some other ship for a specialized purpose. Before the keel was even laid, he would find a customer to charter her when she was completed. Waving the charter contract, he would walk into a bank and ask for a loan with which to build the ship. The loan was to be of the deferred-payment variety, under which the bank expected little or none of its money back until the ship was actually afloat. Once she was afloat, the charter fees would be assigned to the bank, and the loan would be paid off as before. Eventually, when the entire years-long transaction was completed, Ludwig would sail away as owner of a ship in which he had invested barely a dime of his own money.
Once again the proposition startled the banks. But once again it made sense when examined closely. Ludwig’s own credit rating was now quite acceptable – and, as before, he was backed up by the credit of his charter customers. “A loan arrangement of this kind,” says the Chase officer, “is what we call ‘two-name paper’ – meaning, in effect, that payment is guaranteed by two different companies or men who are more or less independent of each other economically. That is, if one gets into trouble and defaults, the other won’t necessarily be in the same trouble and, if all goes well, will honor the obligation. The bank, you see, gets an extra measure of safety for its money.”
Ludwig was now well launched on his great fortune-building odyssey. He had started by renting space in other people’s docks and shipyards. Now he began building his own facilities – using OPM, of course. His small ship-building company prospered and grew explosively during World War Two, when the U.S. government was a greedy customer for every tanker he could build.
An impressive post-war boom began to show itself in the late 1940s, and Ludwig looked for ways to expand. He decided (as did many other shipbuilders and shipping operators) that the United States had become one of the world’s worst places in which to base a business of this kind. Labor costs, materials prices and taxes were all too high, and the entire shipping industry was bogged in a vast, tangled seaweed bed of tariff problems and other governmental restrictions. It was time, Ludwig thought, to look around the world.
In the early 1950s he found an enticing deal in Japan. The Japanese, losers of the war and at that time economic losers, too, had a huge naval shipyard at Kure – birthplace of battleships, aircraft carriers and other giant craft. The war’s end had closed it down throwing thousands out of work and plunging the region into a severe, long-lasting and seemingly incurable depression. The Japanese government was anxious to get something started there but was treading warily for fear that Kure might be turned into an American naval yard and permanent military base. When Ludwig came around – a private American citizen with lots of cash and even more credit – the Japanese welcomed him joyfully. (One local official, it is said, literally had tears of happiness streaming down his cheeks as he signed some contracts later.) The Japanese quickly made a deal with the taciturn American. In return for certain easy concessions on his part – he had to hire Japanese labor and use Japanese steel, for instance, which he wanted to do, anyway – they gave him a cheap, long-term lease of the Kure shipyard plus an attractive assortment of tax and tariff deals and other pot sweeteners.
Ludwig built tankers, iron-ore carriers and other ships at Kure from then until the present time. He built bigger and bigger ships; each succeeding generation could carry more cargo at a cheaper rate per ton. He sold some, kept others. As his fleet expanded, he set up new companies around the world to operate the ships – companies incorporated in nations such as Liberia and Panama, which offer a shipper all kinds of advantages in terms of taxes, labor laws and ship-registration expenses. In time he began to fit new pieces into the structure of his global empire. He acquired mining and petroleum properties whose transportation needs could be served by his ships. He set up banking-and-loan companies that could participate in the financial flow his empire generated. He amassed what must surely be one of the highest piles of wealth ever shovelled together by one man.
One man? That is almost literally true. Ludwig owns many of his ventures and properties outright; he is majority owner of most of the others. Unlike some other men we’ll meet here (see particularly the story of Jim Ling, chapter 15), Ludwig has never been attracted by the idea of equity financing, in which you raise money for a venture by selling some or most of the ownership and future profits to other people. Ludwig hasn’t wanted a horde of stockholders telling him what to do. He has always preferred to move ahead by borrowing other people’s money and keeping the ownership for himself. Except in a private deal, it has never been possible to buy stock in any Ludwig venture.
Ludwig, today well past the age when most men retire, may at last regret having run a one-man show so long. There seems to be no natural successor to take over the huge, complicated empire and keep it running. There are some trusted friends and aides, but no one man among them emerges clearly as the heir apparent. In fact, Ludwig’s lifelong obsession with secrecy has been such that most of his own executives know less about the corporate complex than they could wish. “Each executive is in charge of his own little section,” says one insider, “and each man is given to understand that anything beyond his own section is none of his damned business. Ludwig may be the only man in the company who really knows everything there is to know about it.”
Ludwig’s successors, whoever they turn out to be, may wish in the end that the great borrower had engineered the colossal structure in a different way. But at the moment one achievement stands out starkly: Daniel Keith Ludwig came from nowhere and made himself one of the richest men on earth. Contrary to the old barroom platitudes, them as ain’t got can get.