December 5, 2014
Invest Like A Modern Day Rockefeller
You've undoubtedly heard of the robber barons. These affluent industrialists were considered some of the wealthiest -- and most successful -- businessmen of the 18th and 19th centuries. (The term originally appeared in the August 1870 issue of The Atlantic Monthly magazine.)
The most famous robber barons have even become standard icons in American culture. The stories of wealth amassed by tycoons like J.P. Morgan, John D. Rockefeller and Andrew Carnegie are recounted in public school history classes throughout the United States each year.
Unfortunately, to most people the word robber baron is not a term of endearment. It's generally used to contextualize a greedy Wall Street "fat cat" with an insatiable thirst for money -- the kind of caricature you would expect a political cartoonist to feature in Sunday's edition of The Washington Post.
But that's not how I look at them. When I picture the robber barons, I see some of the best investors the world has ever known. Rockefeller, for example, was said to have accumulated an inflation-adjusted net worth of $360 billion by the time he died in 1937. To put that in perspective, Bill Gates, the world's current richest man, has a net worth of "only" $82 billion.
What's more, the companies these individuals created -- and used to amass their wealth -- have been some of the most successful and longest-standing businesses in American history. J.P. Morgan's bank, known these days as JPMorganChase (NYSE: JPM), for example, has been around in some shape or form since 1895. I can't make a stock chart big enough to show you just how well it has performed over that time.
The thing is that the robber barons aren't unique to early American history. They can be found in any given time period and in any given region. In fact, I believe a new set of "robber barons" is being created as we speak. And like the robber barons of the late 1800s, this new breed will create the companies that will eventually form the backbone of corporate America (if they haven't already).
See, what made the original robber barons so successful was the period in which they did business. They didn't know our country as the economic powerhouse it is today. Rather, they knew America when it was still in its "start-up" phase -- back when we were still primarily agrarian.
But what they did see was that America was growing, and quickly. With the industrial revolution taking hold in 1820, the robber barons recognized that it was only a matter of time before the United States was booming with economic activity. As a result, robber barons saw an opportunity to reap huge profits from buying (in many instances creating) the infrastructure needed to make that dream a reality.
And so that's what they did. For example, Rockefeller made his fortune by investing in oil refineries. At the time oil was a still a relatively useless commodity. While petroleum was discovered some 17 centuries ago, it wasn't until 1848, when a chemist named James Young started refining petroleum into more usable substances, that oil attained the industrial prowess it has today.
As a result, in the late 1850s the United States experienced its first "oil rush" as speculators all over the world rushed to conquer America's untapped reserves. Rockefeller, understanding that the surge in petroleum production would need to be met with increased refining capacity, founded Standard Oil in 1870 -- the world's largest refiner at the time.
As the saying goes, the rest is history. From 1870 to its dissolution in 1911, Standard Oil monopolized the refinery business. During its heyday the company controlled over 88% of all refined oils flowing into the United States. As you would expect, having such a tight hold on one of the world's most critical resources made Standard Oil investors a fortune. Between 1882 and 1906, the company paid out over $548 million in dividends -- or approximately $15 billion in today's terms.
It's the same story for the other robber barons and their respective industries. Andrew Carnegie monopolized steel... John Gates took barbed wire... J.P Morgan banking...
The list goes on, but the point is that all of these men made their wealth by controlling the world's most critical resources of the time. They owned the assets -- and the infrastructure -- that were necessary to keep the world turning.
Of course, today all of these industries have long since matured. Oil, steel, barbed wire, banking, all these businesses are considered "old and stodgy" now. They can still make investors money, but just how much has become a question.
The good news is that today's world is much different than it was in 19th century America. Our needs are entirely different. While we still demand natural resources like oil and steel, our economy has become highly dependent on another critical resource -- technology.
These Stocks Are Creating The Infrastructure Of The Future
When investors think about tech, it's usually high-flying growth stocks like Facebook (Nasdaq: FB) and Zynga (Nasdaq: ZNGA) that come to mind. And because most people remember the tech bubble of the late 1990s, it's easy to see why technology stocks are usually associated with risky growth plays.
But while the tech industry is undoubtedly filled with its share of flavor-of-the-month "high-flyers," this space is also home to several of the world's most important enterprises. Like the companies created by the robber barons in the late 19th century, these businesses control the resources needed to keep today's world turning.
I'm talking about companies like Cisco (Nasdaq: CSCO), Microsoft (Nasdaq: MSFT) and Intel (Nasdaq: INTC).
In the past 15 years, computers and the Internet have revolutionized the way we live our lives. We now rely on technology to pay our bills, buy our groceries, and sometimes even take care of our kids. It's estimated that the average American spends at least 40 hours of personal time using the Internet each month.
And then there's the corporate element. Companies today use the Internet for everything from communicating with clients to automating their business processes. Thanks to technology, some manufacturing facilities can go months without a person even stepping inside them. These "dark factories" are filled with advanced robots that -- thanks to the Internet -- can be operated from remote locations around the globe.
But none of these activities would be possible without the three companies named above.
For example, every time a computer connects to the Internet, it's probably using a Cisco router. Chances are good that it also has Microsoft Windows installed as its operating software, and its hardware contains an Intel semiconductor. These are the world's newest critical resources: software, hardware, and networking equipment.
While these kinds of services aren't exactly sexy, they are necessary. Could you imagine if the world wasn't able to connect to the Internet using Cisco's routers, or open their computer using Microsoft's latest operating software? If that were the case, then the Internet -- and consequently the world economy -- would shut down within hours.
That is the kind of dominating market presence that led the robber barons to riches in the late 1800s. Like back then, these companies have created near monopolies in some of the world's most important fields. Such dominance provides these institutions with unlimited demand and highly competitive pricing power.
It's those kinds of competitive advantages that have led these companies to market beating returns since they've become available to the public. Just take a look to see how some of these stocks have fared compared to the market:
| Company | Ticker | IPO Date
| Total Return
Since IPO
| S&P 500 Total Return
(Over same time period)
| | Intel | INTC | 1/3/1972 | 292,641%
| 6,632%
| Microsoft
| MSFT | 3/13/1986 | 68,168%
| 1,521%
| | Cisco | CSCO | 2/28/1990 | 33,104%
| 922% | | Google | GOOGL | 8/20/2004
| 907%
| 133% |
Investing in robber baron-like companies can bring a windfall of profits to investors. They are similar to the kind of stocks we, around the office, call "Forever Stocks."
Regular readers of StreetAuthority Daily are already familiar with our Forever Stocks, but for those who missed it, Dave Forest, recently presented in front of a live audience at St. Edward's University. There, he talked about his new breakthrough research -- research you won't find anywhere else -- and he revealed his new list of "The 10 Best Stocks to Hold Forever." If you're a subscriber to Top 10 Stocks, you can access that report here.
If you're interested in learning more about Dave's new list of Forever Stocks -- and how they've outperformed the market by 7-to-1 over the last ten years -- you can watch his presentation here.
Good investing,
StreetAuthority Daily
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