#168 What I Learned From Hetty Green
What I learned from reading “The Richest Woman in America: Hetty Green in the Gilded Age” by Janet Wallach.
Today’s Chapter is based on the book “The Richest Woman in America: Hetty Green in the Gilded Age” by Janet Wallach.
Hetty Green was an American businesswoman and financier known as the Witch of Wall Street. She built a vast fortune by investing in government bonds, railroads and real estate, often helping stabilize New York City and Wall Street during financial panics by providing loans when banks were unwilling to extend credit. Despite her wealth, she lived frugally which fed to her reputation as an eccentric woman in the Gilded Age.
Here’s what I learned:
Be Financial Literate
“Financial freedom is available to those who learn about it and work for it.”
— Robert Kiyosaki
In some ways, Hetty Green lived in a world in which she did not belong. She was a businesswoman in a world dominated by men. She was born and raised in a family of Quaker in the Gilded Age, an era of excess. And yet, she succeeded because she educated herself thoroughly, thought independently and lived beyond her means. In fact, from her earliest years, Hetty Green absorbed financial knowledge in ways that most children, particularly girls of her era, never experienced. Her grandfather, recognizing her quick mind, enlisted her help with his business correspondence.
Wallach writes that “The girl was quick with numbers and good at reading, and she caught her grandfather’s notice. With his eyesight failing, he snapped open the evening newspapers, handed them to Hetty, and asked her to read aloud. In her child’s voice she called out the stock quotations and commerce reports, warming her grandfather’s heart. And sometimes when he needed help with his correspondence, he called on her. That was how she absorbed some of his business methods, she later said.”
Similarly, Hetty’s father continued her financial education by bringing her along his business meetings. Wallach mentions that “She watched him closely as he assessed the inventory, inspected the ships, dealt with the captains, and heard the rough talk of the crews. She listened to him bargain with merchants and berate them when he thought they were charging too much. She followed along when he took her to the countinghouse and showed her how to read the ledgers, or brought her to the brokers and taught her how to trade commodities. She paid attention when he repeated again and again that property was a trust to be taken care of and enlarged for future generations.”
“There is nothing better than this sort of training. A girl acquires the habit of keeping track of every cent and gets the most value for every dollar she spends.”
— Hetty Green
As such, it is not surprising that throughout her life, Green advocated for women to take control of their own finances, believing that ignorance made them vulnerable. Wallach mentions that Green “encouraged girls to educate themselves about business; she urged women to manage their own money and take control of their finances.”
By consequence, on the day that her son was born, Green only had one goal, to see him become the richest man in America. And, to do so, he had to be financial literate. Similarly to the financial education she received from her father, Green sent her son Ned to Chicago to oversee her mortgages at an early age. He was charged to collect payments due and she required him to memorize the amount of principle and interest owed on each mortgage, as she once warned him that “Whatever someone owed, don’t take a penny less. And not a penny more. It would only mess up his books”
She also brought Ned along to train him in real estate investing. She fully believed that a hands-on experience was the best way to learn. It was important for him to understand what it involved in terms of materials and labor and not just the financial aspect of it. But more importantly, Green gave him important responsibilities in terms of buying and selling new properties and mortgages. Ned was held fully accountable for his every decision. Of course, Green gave him plenty of advices on how to make a deal. As she once said, “If anyone is fool enough to offer you the full amount, take it. If you are offered less, tell the man you will give him the answer in the morning. Think the matter over carefully in the evening. If you decide that it will be to our advantage to accept the offer, say so the next day.”
“In business generally, don’y close a bargain until you have reflected on it overnight.”
— Hetty Green
For parents today, Hetty Green’s example offers a powerful reminder that financial education cannot be left to chance. Children learn attitudes toward money from watching their parents, and they need intentional teaching about saving, investing, and the values that should guide financial decisions. Hetty understood that wealth without wisdom is a burden, and she worked to ensure her son would be prepared for the responsibility she was placing in his hands.
Be Frugal
“The way to wealth is as plain as the way to market. It depends chiefly on two words, industry and frugality: that is, waste neither time nor money, but make the best use of both. Without industry and frugality nothing will do, and with them everything.”
— Benjamin Franklin
Hetty Green was most famous for being heavily criticized for her extreme frugality during the Gilded Age. As a matter of fact, when her cleaning lady gave birth to a son, Green gave her a gold piece and advised her to keep it in the bank until he turns twenty-one. Instead of appreciating the lesson on compound interest, the cleaning lady scorned Green for saving instead of spending.
Green possessed a fortune that could have bought her palaces, yet she chose to live in modest boarding houses, wearing the same black dresses until they wore out, and haggling over the price of everyday goods. While her thriftiness often bordered eccentricity, her underlying philosophy was incredibly sound. She understood that wealth is not measured by what you spend but by what you keep.
Green rejected the spending habits that were rapidly taking hold in America during the Gilded Age among the wealthiest. she saw no value in displaying wealth through expensive clothes and jewelry, viewing them as wasteful and foolish. She recognized from an early age that every dollar spent on luxury was a dollar that could no longer be put to work and earning compounding interest. As Green once said, “Watch your pennies and the dollars will take care of themselves.”
As such, it is not surprising that frugality was a governing principle in her household. She believed that the modern American culture was creating a dangerous lack of financial discipline and she wanted to make sure that her children would not be accustomed to easy credit and instant gratification. As such, while she gave her son Ned a larger allowance than other boys, she still dressed him in hand-me-down clothes and taught him to watch his pennies.
“There’s one reason why we have hard times: money easy coming and easy going! American children are not taught how to save money but how to spend it. Everything they want—give it to them so long as you know the price of the credit. That’s the policy of the modern mother and she is raising a nation of spendthrifts whose one thought is to get what they want when they want it.”
— Hetty Green
During an interview with a reporter, she explained that her clothes weren’t in style, but “I’ve worn it for nearly ten years and it’s going to do ten more years’ service. I’m too old a lady to care about clothes.” She elaborates that “when it comes to spending your life, there have to be some things neglected. If you try to do too much, you can never get anywhere. As I was naturally made for work, I just as naturally wasn’t made for a fashion plate. I have never bothered about what to wear.”
It can be said that Hetty Green’s thriftiness started at a young age. She first created her first bank account at the mere age of eight, where she would gather all the precious coins she had saved from her weekly allowance. This was the start of Hetty’s frugality and became the foundation that turned modest capital into billions. In an age of instant gratification and consumer debt, what Hetty Green can teach us is clear: live below your means and earn compound growth.
This importance put into frugality reminds me of what we have learned from Benjamin Franklin who had “frugality” as one of his thirteen virtues. In fact, Franklin’s upbringing instilled in him a deep respect for hard work and thriftiness, values that shaped his success and remained central to his philosophy throughout his life. As a matter of fact, Franklin explains that his habits of frugality came from his father who often repeated to him this proverb of Solomon, “Seest thou a man diligent in his calling, he shall stand before kings, he shall not stand before mean men.”
As such, when he first started his career as a printer, his frugal approach was already evident. As Franklin once wrote, “I dressed plainly; I was seen at no places of idle diversion. I never went out a fishing or shooting; a book, indeed, sometimes debauched me from my work, but that was seldom, snug, and gave no scandal; and, to show that I was not above my business, I sometimes brought home the paper I purchased at the stores thro’ the streets on a wheelbarrow.”
Similarly, Franklin was also frugal in the way he managed his household. He explained, “We kept no idle servants, our table was plain and simple, our furniture of the cheapest. For instance, my breakfast was a long time bread and milk (no tea), and I ate it out of a twopenny earthen porringer, with a pewter spoon.”
“In order to secure my credit and character as a tradesman, I took care not only to be in reality industrious and frugal, but to avoid all appearances to the contrary.”
— Benjamin Franklin
Furthermore, his frugality even influenced Benjamin Franklin’s eating habit. As a matter of fact, in order to save money, when he was 16, Franklin started following a vegetable diet as he could end up saving half of what his brother paid him to board himself. This would not only allow himself more money to spend on books but more time to read.
As Franklin mentioned, “I made myself acquainted with Tryon’s manner of preparing some of his dishes, such as boiling potatoes or rice, making hasty pudding, and a few others, and then proposed to my brother, that if he would give me, weekly, half the money he paid for my board, I would board myself. He instantly agreed to it, and I presently found that I could save half what he paid me. This was an additional fund for buying books. But I had another advantage in it. My brother and the rest going from the printing-house to their meals, I remained there alone, and, dispatching presently my light repast, which often was no more than a biscuit or a slice of bread, a handful of raisins or a tart from the pastry-cook’s, and a glass of water, had the rest of the time till their return for study, in which I made the greater progress, from that greater clearness of head and quicker apprehension which usually attend temperance in eating and drinking.
Be Contrarian
“Be fearful when others are greedy and greedy when others are fearful.”
— Warren Buffett
In my opinion, Hetty Green’s greatest edge as an investor was her willingness to go against the crowd. She always kept a stack of cash ready to take on opportunities created by prices going down due to fear. As a matter of fact, in an era where speculative frenzies regularly swept through Wall Street, ruining countless of investors who bought at the top of the market crazy and who panicked at the bottom, Green understood that following the herd was a certain way to lose capital. Instead, she built a contrarian investment philosophy and she possessed the discipline to execute it to perfection.
Her contrarian strategy in investing was honed early on, particularly during the economic turmoil following the Civil War. Wallach writes that “The devastation of the South, the high debt caused by the war, and the disarray of the Union created a stormy picture. Many people viewed the country’s economy as doubtful. Seeing chaos around the corner, they worried about the stability of the government and refused to pay face value for its greenbacks. Instead, they rushed to gold. The rules of the marketplace state that for every seller there must be a buyer. The more the public discounted paper money, pushing it down as low as fifty cents on the dollar, the more Hetty bought.“
“I buy when things are low and nobody wants them. I keep them until they go up and people are crazy to get them. That is, I believe, the secret of all successful business.”
— Hetty Green
There are three reasons why Hetty Green was able to implement this contrarian investing approach successfully. Firstly, she always had cash on hand. As Shane Parrish once said in an interview with Tim Ferriss, the reason why Warren Buffett is so successful is because he has a large stack of cash in the balance sheet, “and so, what he’s always doing is everybody thinks he’s out of touch and he looks like an idiot. But he always wins because no matter what the outcome is, he wins. If the stock market goes up, he wins. If the stock market crashes, he wins because he’s put himself in a position where no matter what happens, he can take advantage of circumstances rather than having circumstances take advantage of him.“
Secondly, Hetty Green only invested in things that were within her circle of competence. Notably, she mainly invested in railroads, bonds or real estate. She used her research skills to identify bargains others missed, but it was also a lot easier for her to buy things that are depressed when she knows what she is buying. As Wallach writes, “Whether it was a horse and buggy or stocks and bonds, her canny habit of investigating every possible facet before she bought helped make her successful. “
Green explains that to determine when stocks are cheap demands a thorough knowledge of “their history, their dividend-paying possibilities, and what they have sold for in the past. If one can buy a good thing at a lower cost than it has ever sold for before, he may be fairly sure of getting it cheap.”
“Before deciding on an investment, I seek out every kind of information about it.”
— Hetty Green
Thirdly, Hetty Green was extremely patient once she invested in an asset. She would often buy assets and tuck them away for years, sometimes waiting decades for investments to finally pay off. As she once said, “I keep them just as I keep a considerable number of diamonds on hand until they go up and people are anxious to buy.”
This reminds me of the concept of Second-Level Thinking from Howard Marks, who argues that merely matching the market is easy, but outperforming it requires superior insight, which he calls second-level thinking. He writes, “Anyone can achieve average investment performance—just invest in an index fund that buys a little of everything. That will give you what is known as “market returns”—merely matching whatever the market does. But successful investors want more. They want to beat the market.”
As such, in Marks’ opinion, the definition of successful investing is to do better than the market and other investors. He adheres to the fact that “To accomplish that, you need either good luck or superior insight. Counting on luck isn’t much of a plan, so you’d better concentrate on insight.”
The core challenge is that not only do you need to have a contrarian approach, but your thinking must surpass the collective intelligence of the market. Other participants are smart, informed, and equipped with powerful tools, so you need an edge they lack.
“Remember, your goal in investing isn’t to earn average returns; you want to do better than average. Thus, your thinking has to be better than that of others—both more powerful and at a higher level. Since other investors may be smart, well-informed and highly computerized, you must find an edge they don’t have. You must think of something they haven’t thought of, see things they miss or bring insight they don’t possess. You have to react differently and behave differently. In short, being right may be a necessary condition for investment success, but it won’t be sufficient. You must be more right than others … which by definition means your thinking has to be different.”
— Howard Marks
Marks mentions that second-level thinking is not linear or simple. It involves weighting probabilities and comparing your view to the consensus. A second-level thinker must take many things into account such as:
What is the range of likely future outcomes?
Which outcome do I think will occur?
What’s the probability I’m right?
What does the consensus think?
How does my expectation differ from the consensus?
How does the current price for the asset comport with the consensus view of the future, and with mine?
Is the consensus psychology that’s incorporated in the price too bullish or bearish?
What will happen to the asset’s price if the consensus turns out to be right, and what if I’m right?
Howard Marks reminds us that investing is a competitive endeavor. To win consistently, you cannot follow the crowd. You must train yourself to question assumptions, probe deeper, and stay disciplined when your view diverges from the majority. Marks makes it clear that this higher-level cognition is the foundation of lasting outperformance. He writes, “Before trying to compete in the zero-sum world of investing, you must ask yourself whether you have good reason to expect to be in the top half. To outperform the average investor, you have to be able to outthink the consensus. Are you capable of doing so? What makes you think so?”
“If your behavior is conventional, you’re likely to get conventional results—either good or bad. Only if your behavior is unconventional is your performance likely to be unconventional, and only if your judgments are superior is your performance likely to be above average.”
— Howard Marks
Beyond the Book
Listen to "Hetty Green: The Witch of Wall Street [Outliers]" by The Knowledge Project
Read "Ben Franklin: The Thirteen Necessary Virtues" by Farnam Street
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