Hetty Green: Wall Street Witch or Wizard?

During the late 1800s and early 1900s, Hetty Green was a legendary figure in American finance. She was the heiress to a sizeable fortune stemming from Massachusetts-based shipping and whaling industries in the 19th century, and compounded her fortunes many times as the only woman tycoon on Wall Street during that period. Indeed, her performance was so big J. P. Morgan welcomed her to a 1907 meeting to discuss a financial crisis that affected the stock exchange and the whole American economy. She was the only inclusive woman.

Hetty’s first name was Henrietta Howland Green, but they all named her Hetty (it is even the name on her tomb stone). Unfortunately, because of her miserable habits, which were extensively reported in the day’s tabloids and earned her the title, “Witch of Wall Street.”

Although she accumulated a wealth valued at $100 million at least worth a hundred billion dollars in today’s buying power), she lived in a variety of tiny apartments in low-rent working-class communities. She usually wore worn dirty clothing, which she stopped cleaning for as long as she could, and she would take with her a tub of oatmeal, which she would warm on a heater to save on restaurant meals while away from home. Most infamously, she would appear at charitable wards when she needed emergency attention to avoid paying doctor’s bills. Tragically, when her son, Ned, injured his leg, she followed this technique. When her identity was revealed and medication denied, she did not take the boy to a private doctor until the boy’s father, from whom Hetty was estranged, was informed of the condition and promised to pay the bill promptly. But by then, so much time had been lost and the limb was finally amputated.

While sneering at Hetty as Wall Street’s Witch is simple, it can be argued that she was also a financial wizard. Indeed, her stock market strategies remind me of modern-day hedge funds’ strategies. Her individuality, clear-thinking, and steadfastness on finance topics primed her for stellar material success.

Her contrarian perspective was one of Hetty’s most powerful qualities. Although this resulted in a fragile personality that was hard to get along with and generated some dubious decisions about her personal life, it also yielded brilliant financial results.

The nature of the contrarion investment is to go against the crowd, which came naturally to Hetty. The contrarian perspective was adeptly summarized by Hetty’s slightly older counterpart, Russell Sage, who urged buyers to purchase winter summer hats when no one needed them and sell them when warm weather returned.

Hetty did that after “Black Thursday,” September 18,1873, when stock market collapsed. She first emerged on Wall Street the next morning and placed huge orders, reaping a bonanza as markets quickly recovered. She did the same in 1907, where she also underwrote a $1.1 million New York City bond issue at a time when none else was involved, operating effectively as a one-woman investment bank and thereby saving the city from default.

Another technique she employed was risk arbitrage, the practice of betting in a company in expectation of a takeover.

A consortium of New York businessmen purchased stock of the Georgia Central Railroad in 1886. Investors realized that the railroad, which encompassed over 2,000 miles of track, could be made even more profitable by changing management. The firm also operated a lucrative steamship line operating between Georgia and New York, not expressed in the stock price. The New York founders is behaving in the same manner as contemporary private equity firms by approaching Georgia Central, finding publicly listed businesses they would buy-out and then “flip” at a large mark-up.

Railroad management struck back by drawing on southern pride (only a few decades after the Civil War) and dismissing New Yorkers as selfish interlopers.

Hetty jumped into this battlefield, acquiring nearly 7,000 shares (about 15% of outstanding shares) at an average price of $70 a share. Price easily hit $100.

The proxy vote on the acquisition seemed to be near. New York investors gave Hetty $115 a share, a 15 percent premium on the stock price, but requested $125 a share. She depended on her prediction not to risk losing the takeover battle and pay-up. Investors balked, but then gave a counter. They’d pay her price, but only after the election, where she’d be paid without regard to the result. Hetty accepted, but increased her price to $130 because she could be paid better if she had to wait for her earnings, even for a short time. The investors offered a counter-offer of $127.50, which Hetty agreed along with the additional clause that the investors would have to put up full sum collateral. New York investors discovered that Hetty was a tough negotiator, and in a short period, Hetty made a big profits.

Another new hedge fund tactic that Hetty used was “vulture” or reorganization buying, acquiring a distressed company’s guaranteed bonds at a deep discount in expectation of gaining after the company emerges from bankruptcy. Under American bankruptcy law, then and today, when a business goes down, stockholders are wiped out but guaranteed bondholders have a claim against the company’s assets and their approval is required for reorganization.

In 1887, Hetty purchased over $1 million in Houston and Texas Central Railroad shares, a badly operated and rickety operation. As railroad giant Collis Huntington took over the company and sought to intimate bondholders to consider bonds worth even less than their purchase price, he did not foresee dealing with Hetty. She understood that first mortgages on the railroad’s property insured her bonds, and that Huntington lusted after the operation because he wished to join in his own Central Pacific empire.

In the Huntington-Green battle, the proverbial irresistible power encountered the unmovable object. Hetty declined to award her ascent to the railway reorganization for almost another year, leaving Huntington’s acquisition ambitions in limbo, and playing havoc with Central’s asset prices

Pacific, Houston and Texas South, until Huntington served her terms. Huntington wasn’t stopped, but he was definitely diverted, and Hetty made a wonderful profit.

After a long, profitable life, Hetty died on July 3, 1916, along with her son Ned. He inherited the majority of her fortune and forged his own prosperous career as an executive and financial railroad, but he lived in luxury, constructing a palatial residence and loving the best that money could afford.

This article was published in slightly different form on Traders .com. It is
copyrighted by Technical Analysis, Inc., and is used with the permission of the original publisher.