The Princess of Whales Becomes the Queen of Wall Street
“ I buy when things are low and no one wants them . I keep them , just as I keep a considerable number of diamonds on hand , until they go up and people are anxious to buy them .”
— Hetty Green , The Queen of Wall Street ( 1905 )
The funding of whaling ventures is rarely associated with venture capital . One reason is because the entire industry disappeared soon after John D . Rockefeller expanded the oil industry under the Standard Oil banner . By the late 1800s , kerosene and petroleum-based lubricants were much cheaper than whale oil , rendering the whaling industry obsolete . Yet there remains much to be learned from reexamining the rise and fall of its predecessor , as US venture capital firms resurrected its financing method in the mid-1900s .
The first distinguishing attribute of whaling investments was the time horizon . In 1850 , the average voyage lasted 3.6 years , and an average of 6 % of ships were lost at sea each year . Throughout each voyage , investors knew little regarding a ship ’ s prospects . Thus , once capital was deployed , it was nearly impossible to exit the investment until the ship returned .
A second challenge was the extreme variability of returns . After completing voyages , most ships returned to port with profits that were unworthy of the risks . An inventory of 4,127 documented voyages departing New Bedford between 1817 and 1906 revealed that 35.5 % lost money and another 22 % reported a profit of less than 10 %. Figure 1 shows the distribution of whaling voyage profit rates . It is nearly identical to the distribution of venture capital returns , which is included for comparison .
Whale ships at the New Bedford wharves , 1887 .
The final challenge was gaining exposure to the rare voyages that produced outsized returns . Whaling investments only made sense if the occasional blockbuster return offset the much more common subpar returns . As indicated in Figure 1 , only 12.6 % of voyages produced returns of 40 % or more , which rendered whaling ventures sensible only for gamblers or investors who adequately diversified across multiple voyages .
Emergence of a 19th Century Venture Capital Industry
Investors in New Bedford addressed the unique investment challenges of whaling in much the same way that modern venture capitalists address the risks of early-stage venture investments . First , they structured investments as partnerships . The whaling agent functioned like a general partner , and wealthy individuals functioned as limited partners . The whaling agents then allocated investors ’ funds across multiple voyages , much like modern venture captial funds allocate to multiple portfolio companies . In addition to the partnership and portfolio structure , other notable similarities included :
1 . Lending of Managerial Expertise : By the mid-1800s , capital was a commodity in New Bedford , but obtaining high-quality mentoring and proprietary knowledge
Hetty Green is arguably the most underrated investor in US history . She was the richest woman in America by the end of the Gilded Age , but her investment philosophy and temperament differed markedly from the stock operators who dominated Wall Street . She shunned the dark arts of insider trading and market manipulation , she refused to leverage her positions and she embraced a life of thrift rather than luxury .
Green ’ s behavior derived from her experiences in New Bedford . Her father , Edward Robinson , and her grandfather , Gideon Howland , were members of an exclusive clan of successful whaling agents . She often accompanied her father on the docks during the day and read newspapers and business reports to her grandfather at night .
Green ’ s training in the risky business of whaling forced her to internalize virtues , such as thriftiness , patience and relentless due diligence . These virtues proved invaluable in the tumultuous markets of the Gilded Age . Many of her peers quickly amassed and lost fortunes during the waves of manias , panics and crashes on Wall Street . In contrast , Green skillfully navigated the treacherous currents while deftly avoiding the occasional rogue wave . Hetty ’ s experience as a whaler helped her remain afloat , while the recklessness of many peers caused their fortunes to sink to the bottom of the sea .
www . MoAF . org | Fall 2023 | FINANCIAL HISTORY 15