A Valuable Lesson From Sam the Banana Man

Dear Member,

As investors and traders, we’re tasked with a single mission: to find opportunity where others underestimate it or don’t see it.

It’s a path marked by peaks and troughs… by moments of brilliance and moments of “What was I thinking?”

But building wealth is about taking risks and managing those risks, as well as pouncing on opportunities when everyone else is too timid to act.

At the moment, the markets are struggling.

Most people like to bring up Warren Buffett or Baron Rothschild in times like these. But for me, I think the lessons of a poor Russian immigrant are more apropos…

In 1876, Americans got their first taste of bananas at the Philadelphia Centennial Exposition. It was a luxury item sold for $0.10 apiece.

In the 1890s, bananas that arrived at U.S. ports from Jamaica were separated into three classes: greens, turnings and ripes.

Turnings – or yellows – were bananas that were almost ripe. Ripes were ready to eat immediately. They had mere days remaining before they browned.

But, because of the long shipping times and lack of refrigeration, turnings and ripes were largely worthless.

After being unloaded from the boats and sorted, turnings were sold at a discount to local merchants. Ripes were dumped into a pile and left to rot, a stinking heap that was often pushed out to the end of the wharf.

Greens were precious. They were loaded into boxcars with ice and straw, then shipped to hungry customers further north.

A 17-year-old Russian immigrant, Samuel Zemurray, saw an opportunity where everyone else saw trash. He took the ripes and rented a boxcar. He figured he could be more nimble than the bigger players.

Speed was his ally since he had only three to five days before the ripes went bad.

Zemurray sent news up the Illinois Central line that he had cheap bananas for sale. Grocers met the train at the stops and bought directly from his boxcar.

He became known as “Sam the Banana Man.”

At 17, he started with $150 in capital. By the time he was 21, he’d made over $100,000.

Zemurray expanded his business into turnings and greens. He bought his own ships. And eventually he bought land in Honduras and launched the Cuyamel Fruit Company.

By 1927, 14% of the bananas imported and sold in the United States came from Zemurray.

In November 1929, Zemurray sold Cuyamel Fruit Company to its rival, United Fruit Company, in exchange for 300,000 shares of stock, worth about $31 million.

Sam the Banana Man went into retirement… at least somewhat.

Zemurray retained a seat on the board of United Fruit. And over the next several years, the company saw its business crumble through mismanagement. Profits tumbled as its bananas weren’t able to get to market. Employees were angry. The company’s shares tumbled from over $100 to $10 as profits fell from $44.6 million to $6.2 million.

Again, where everyone saw trash, Zemurray saw opportunity.

As investors, our strength comes from knowledge and the pursuit of it. Understanding why a company’s revenue is falling or why its profitability is down is just as important as knowing which company will be first to market with “The Next Big Thing.”

When United Fruit’s shares were tumbling, Zemurray did a very powerful, but very simple thing. He went to the docks and talked to the captains of the ships.

And despite the fact that United Fruit had hired myriad experts to turn the company around, it was Zemurray who unearthed the simple problem that could easily be fixed.

The banana boat captains had been ordered to travel at half-speed once they reached the Gulf of Mexico. The idea was that by traveling slower, the company would save money by using less fuel. What happened instead was the cargo of bananas went bad.

Zemurray had acquired shares of United Fruit until he was the majority shareholder. In 1933, he launched a hostile takeover and took control of the company, naming himself CEO.

His first order to the boat captains? Don’t slow down.

Two weeks later, United Fruit’s shares had doubled. Within six months, shares were trading at $50. And Zemurray remained CEO until 1954.

Beyond Buffett or Rothschild or any other oft-quoted icon, those lessons from Sam the Banana Man are what I carry with me every day into the arena.

What is the “trash” that’s actually an opportunity? What is the truth? Is something really broken or is there a simple solution being overlooked?

Our strength as investors comes from our ability to see beyond the horizon, to build our wealth through knowledge and calculated risks. Today’s down market is the start of tomorrow’s bull run.

Good investing,

Matthew

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