Exhibit 1 : Select UP Stock Prices from 1873 to 1881
Note : The data source for this graph is the The Commercial and Financial Chronicle , https :// catalog . hathitrust . org / Record / 000548353 for the years 1873 – 1881 ( thanks to Bob Wright and Kristin Aguilera of the Museum of American Finance for referring us to this source ). The dotted rectangle encloses the years that Jay Gould controlled the UP , i . e ., 1874 to 1880 . The chart illustrates one stock price for each month of the years profiled ( every-other-month is labeled on the x-axis ). No one consistent date is used , so the chart should only be considered representative of UP performance over the profiled timeframe .
To generate the kind of returns that Gould did at the UP — in a troubled economy no less — required a broad set of integrated skills . Modern financial strategy encompasses four disciplines : strategy , investment , finance and operational management . Gould excelled in each of them .
Strategy : Gould seemed hard-wired to be flexible when it came to strategy , switching gears quickly when a particular strategy did not prove itself and / or a better one presented itself . This approach was consistent with his speculating / trading background and , interestingly , it is also consistent with modern “ complexity economics .”
According to a popular book on that subject , no strategy is sustainable . Such a position necessarily “ changes our definition of an excellent company from one that has continuous high performance for very long periods of time ( an achievement that is almost non-existent ) to one that can string together a series of temporary advantages over time .” This quote summarizes well Gould ’ s strategic success at the UP : he continually “ strung together ” strategic moves , each of which exhibited , more often than not , a positive net present value .
Investment : In addition to speculation / trading , Gould was an expert investor ; in other words , he invested at price levels which , over time , increased in value . For example , his aforementioned gold speculation earned him a fair bit of notoriety , but his investment in the Erie Railroad was timed perfectly from both the buy- and sell-sides which , as one astute observer noted at the time , enabled him to invest in the UP at depressed price levels following the Panic of 1873 . This powerfully enabled the generation of abnormal ( or well in excess of market ) returns .
Finance : Gould also exhibited a level of financial expertise that rivaled the top bankers of his day , especially the legendary J . P . Morgan . For example , and as noted above , the UP was debt-heavy when Gould assumed control of it , but he proposed to restore the credit and boost the earnings of a dishonored railroad in the teeth of a depression . Gould delivered what he promised , and he accomplished much of it within one year . He accomplished this through a combination of hard-nosed negotiation , innovative financial structuring ( which included Gould assuming some of the debt himself ) and leveraging the relationships across his wide financial network .
Operational Management : Gould was incredibly detail oriented as an operating executive , which is a trait that continues to define top performing executives . Like Gould , such executives demonstrate shorter-term expertise by generating revenue and tightly managing expenses , and in the longer-term through investment expertise by positioning their firms strategically to grow profitably over time . Moreover , these executives tend to have another trait in common , one described by legendary investor Phil Fisher as , “ the general term of integrity and encompasses both the honesty and general decency of those who are » continued on page 39
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