I recently finished reading The Match King, a biography of Ivar Kreuger, by Frank Partnoy. The book itself is good, the unexciting prose is more than compensated for by the comprehensive sourcing and research and of course the immutable allure of a story almost stranger than fiction. For those unfamiliar, I will refrain from saying too much other than that Kreuger was a Swedish man of exceptional ambition who, dealing in construction and safety match monopolies, rose to become one of the most infamous financiers of the early 20th century, competing directly with Jack Morgan of J.P. Morgan fame for business in a world recovering from the first world war, before dying under somewhat opaque circumstances in Paris, leaving behind a collapsing business empire, findings of numerous accounting improprieties and outright fraud – together with genuine innovations in securitization and new financial instruments, various companies (e.g. Swedish Match) and works of architectural significance such as Stockholm city hall (yes, the site of the Nobel Prize banquet) and the Matchstick Palace (also located in Stockholm).
Biographies like this provide a virtually unlimited supply of possible takeaways about the human condition but being the dullard I am, I was most impressed by the following initial observation:
Blest excrement, financial disclosures and publicly available data have come a long way since the early 20th century! According to Partnoy: “In 1926, only 242 of 957 companies listed on the New York Stock Exchange published quarterly reports. Nearly a third of listed companies did not issue reports at all, primarily because they had been members of the Exchange for many years and had nondisclosure agreements that were grandfathered from when they first joined. Newly listed companies filed quarterly reports, but they lacked detail. Listing requirements varied by company and were open to negotiation.” [emphasis added] (p. 94, Partnoy, 2009, The Match King, PublicAffairs)
Hey now. Typical, you might opine, the SEC once again slacking on the job! Nope, the SEC did not even exist yet, being established only in 1934! If you are a financial historian these things might not be new to you yet I for one cannot help but marvel at the eldritch abyss of these revelations. Double-entry bookkeeping has been around since 1494, but its fruits were denied to the investing public a measly century ago! This, too, powerfully illustrates just how profound the shift of financial sovereignty away from the Banks and to the retail investor and how blind their speculation must have been. It seems hardly coincidence that a Great Depression and massive regulatory reform were to follow.
Further, the realization that Graham’s Security Analysis (1934) not only was devilishly timely but indeed could not have been a meaningful contribution a decade or two earlier because, quite simply, the disclosures were too lackluster to support extensive financial statement analysis and the quasi-manic US-investor almost entirely uninterested in fundamental data anyway. A structuralist, I am nevertheless still frequently surprised at just how essential the evolution of these collective social edifices is in governing human agency, thought and behavior and how those individuals like Kreuger, with a mix of insight and luck, manage to leverage them to heroic (in the classical sense) ends. So easily distracted by these proverbial gods, we often neglect our agency – and responsibility – in the design of the machine that births them! After all, the public are not just victim of the likes of Kreuger but bear the liability of their creation. Perhaps worth contemplation also, is that the very same cosmos brings forth both Grahams and Kreugers by identical mechanism. How different are these men? Perhaps(,) in an important sense, not at all.
If this is the first time you have heard of Ivar Kreuger, I warmly suggest you at the very least give his Wikipedia a brief once-over
Tom
Ps: On a more personal note, relationships are far more vulnerable to creeping complacency than a buy-and-hold portfolio; treasure them while you can.
The Financial Flâneur 