The Century’s All-Time Best Stock… Paved in Gold

Editorial Note: Earlier this week – inspired by her recent Chairman’s Circle Wealth Cruise through the Panama Canal – Julia profiled a pioneering 19th-century company and its founders. The feedback was incredible.

“It is so interesting, motivating and inspirational to read about these three men, especially Stephens. His writing, his futuristic outlook, is enviable. His resources must have been above the norm.” – Earl B.

“Fascinating account of a few select pioneers with bold intentions and implementation. The power of money, foresight and tenacity clearly paid off.” – Paul D.

If you missed Part 1, read it first by clicking here. We invite all Members to read Part 2 of her story below.

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Dear Member,

On Tuesday, I talked about the three esteemed founders of the Panama Railroad Company – Henry Chauncey, William Aspinwall and John Lloyd Stephens – and the role they played in opening the doors to transcontinental travel, trade and communication.

These are founders I would have invited to become honorary lifetime Members of our Club had we been around then.

They were focused on transforming the PRC into one of the most profitable companies of the 19th century. And they did so against all odds.

But their vision went “beyond wealth,” as we like to say at the Club. Their zealous enthusiasm came from the potential they believed their company had to change the world through its transcontinental connection.

The company’s founders almost failed as a result of the horrendous conditions that plagued the railway’s construction.

Imagine a malaria-ridden jungle, alligator-infested swamps, and stifling heat and humidity. Thousands of workers died of mosquito-born illnesses, but no one at the time understood the cause.

The founders quickly ran out of money, burning through their first million dollars after laying only 8 miles of track. They had 39 monstrous miles to go. Plus they needed to construct more than 170 bridges.

Throughout history, luck has often been a close companion of those building great fortunes. This was no exception for the founders of the PRC. Their timing couldn’t have been better.

Although their PRC initiatives started earlier, the Gold Rush of 1849 served as a major impetus for getting the project funded and completed. It was a primary reason why investors bought the stock and why the investment paid off.

As you can imagine, fortune-seeking passengers from around the world were willing to pay top dollar to get to California faster. The Panama Railroad meant they no longer had to spend months going around Cape Horn. Even when PRC’s rail was far from finished, eager passengers paid top dollar for tickets to travel partially by rail car. When the PRC was completed, its rail tickets were the most expensive of all time. A first-class ticket would set you back $25, and riding second class would cost you $10.

The success of this railway was indeed paved with gold. The railroad not only carried hundreds of thousands of passengers in its time, but it also carried the U.S. mail, coal and other cargo charged by cubic foot – and all cargo was paid for in gold.

Gold itself became a main cargo. During the Civil War, more than $700 million worth of gold was shipped by the PRC. Union troops wanted to ensure its safe transport from California to the East Coast. Sending it via Panama lowered the  risk of interception by Confederates or their western sympathizers in America.

(Note: It was interesting that while I was in Panama researching the PRC, gold fever struck The Oxford Club. For the first time in decades, all of the editors at the Club are bullish on gold.)

The Panama Railroad ran well beyond its initial cost estimate. It was outrageously expensive to build, costing $8 million for only 47 miles of track. That’s $8 million in the mid-1800s. Still, it ended up hugely profitable. It cleared more than $7 million in profits after only five years in operation, thanks to the high ticket prices and surge of customers from around the world. (A gruesome aside: The PRC also made money selling unclaimed cadavers to U.S. medical institutions.)

The PRC was sold in 1877 to the French Panama Canal Company for more than $20 million, making millions for its top shareholders. (In 1904, President Roosevelt bought it back as part of a Panama Canal package for $40 million.)

In the 19th century, America’s manifest destiny reflected our mission to spread independence, republicanism and technological innovation, as well as Christianity. We defiantly stood up to Europe with our Monroe Doctrine. We wanted to be rid of our inferiority complex with Europe, both culturally and financially… as well as end our vulnerability to London’s powerful financiers. The entire world was watching us… our work ethic, our evolving politics, our idealism and our stand on slavery.

Of course, back then, America was the underdog, not a fatiguing superpower. Thanks to the California Gold Rush and numerous ground-breaking inventions earlier that century, foreigners cheered America openly. Rarely do Americans receive that kind of outward admiration now.

Last week, I traveled with Club editors and Chairman’s Circle Members along the exact same route our three “brave companions” took from Colón to New York in one of their steamships. We traveled on a Crystal Cruises line from Panama City on the Pacific, passing through the Panama Canal, to Colón’s port on the Atlantic coast, then up to Cartagena and Santa Marta, Colombia, and on to Jamaica.

I felt the anticipation of going through the Panama Canal and then cruising along the Colombian coast, just as our “19th-century honorary Members” and thousands of fortune-seeking Americans did centuries ago. While in Panama City, I boarded the resurrected PRC in Colón and crossed the isthmus on this historic railroad, following a beautifully scenic one-hour sunset trip through a national park, over rivers and lakes, back to Panama City.

I like to imagine the founders of the PRC – Henry Chauncey, William Aspinwall and John Lloyd Stephens – stayed near our Clubhouse during one of their inevitable travels to Baltimore or Washington from New York.

The stately mansions and townhomes in our neighborhood of Mt. Vernon date back to the 19th century and reflect the period’s grandeur.

Outside our Clubhouse windows we see the first erected Washington Monument in America, just as they would have. Back then, our neighborhood housed prestigious families, theaters, boutique hotels and exclusive clubs, and it still does today.

Our Club trips exploring Panama and Colombia, as well as Nicaragua, the Yucatan, and, in recent years, Jerusalem, Greece and Istanbul, innocently and coincidentally (if you believe in coincidence) matched closely the routes of Stephens’ travels from 1830 to the early 1850s. (If you plan to travel to these countries, I recommend his Incidents of Travel book series.)

I like to think our Club ideals encompass the spirits of Chauncey, Aspinwall and Stephens. My colleagues rib me… of course I think like that!

I’ll share with you now that my dad, Honorary Chairman James Boxley Cooke, and I are direct descendants of Stephens’ brother.

Proud ancestry aside, we are a group of adventurous, knowledge-seeking global investors and entrepreneurs. We aspire to go beyond wealth and fund companies that can change the world for the better. And we are committed to helping anyone who wants to join us to achieve financial liberty.

Good investing,

Julia

P.S. Many Members wrote me saying they were interested in learning more about the PRC. It’s well worth exploring. There were many fascinating accounts of the founders’ trials and achievements that I had to leave out of this series.

If you’d like to explore this topic further, in addition to Stephens’ book series mentioned above, I recommend the following: The Panama Railroad’s website at www.panamarailroad.org, Panama’s Transcontinental Railroad by Gene Hull, Brave Companions: Portraits in History by David McCullough, and the Illustrated History of the Panama Railroad by Fessenden N. Otis. Otis’ book was published by Harper & Brothers in New York in 1867. It’s still available today at www.forgottenbooks.com.

News@TheOC

Contrarial Stocks ‘n’ Boxing: 

So many investors call themselves “contrarians.” And yet the overwhelming majority of these individuals wouldn’t know a contrarian opportunity if it bit them on the nose. In this week’s episode of Oxford Club Radio, Host Marc Lichtenfeld explains what he looks for when evaluating the market’s most unloved stocks.

Later, he interviews Arnie Verbeek, money manager and owner of the Maple Avenue Boxing Gym in Dallas, Texas. Arnie talks about how he uses his gym to teach local young adults about life, responsibility and personal finance.

Click here to listen to the episode.