By John Wasik
CHICAGO, April 20 By now you're probably seasick
of hearing about the 100th anniversary of the Titanic tragedy
and the myriad analyses of why it sunk and what it means. Yet
for some of us who felt compelled to see the James Cameron movie
again - and got suckered into paying for a disappointing 3D -
we're still looking for metaphors and analogies.
Few Titanic buffs look at how J.P. Morgan, the principal
investor in the Titanic, fared after the disaster in 1912.
Morgan was a financial emperor at the time, controlling the
Titanic's parent company, White Star Line, as part of an attempt
to monopolize North Atlantic shipping through a trust of other
shippers he owned.
Morgan set up the White Star Line as a British-crewed
company to side-step U.S. antitrust laws. The banker, who had
canceled his trip aboard the Titanic, died in 1913. (It was said
that the ship was doomed by the ghosts of the eight Irish men
who died building it, according to my wife, who grew up a few
blocks away from where the ship was built in Belfast).
What later submerged Morgan's shipping trust was that it was
over leveraged as it tried to control an already volatile
business that took a huge hit when World War One started in
1914. Ultimately, Morgan's monopoly attempt failed, and his
International Mercantile Marine Co went into receivership a few
years after the Titanic sank. Like most other attempts to corner
a commodity or industry, it was an "all in" bet that
over-concentrated risk. It was the equivalent of borrowing money
to invest your entire portfolio in dot-com stocks in 1999.
Managers of the reorganized International Mercantile, which
became United States Lines during World War Two, though,
apparently hadn't learned the lesson of spending big on mammoth
ships or outdated technologies. The company built and launched
the SS United States in 1952, the largest passenger ship built
in the United States at the time, just before the airline
industry was starting its long run to dominate long-distance
It's more instructive to look at two of the survivors of
Morgan's legacy, namely General Electric Co and U.S.
Steel Corp. Both companies were consolidations of smaller
companies, employed huge economies of scale and are still very
much in business after more than a century. What kept these
goliaths in business over the years? Adapting to changing
markets, technologies and diversifying their sources of income.
U.S. Steel began its life in 1901 as the largest business
enterprise ever created. General Electric was a merger of Thomas
Edison's holdings and another company. Neither corporation made
sexy products like tablet computers or smartphones. What makes
them survivors is that they produce things that are
indispensable in modern life. Steel is a global commodity in
ever-greater demand. Electrical equipment such as transformers
and generators are still needed to make power, which is needed
in every mature and developing country.
Even though these companies have weathered intense storms
over the years, a basic rule of corporate survivorship is to
make something or provide a service that's a virtual staple,
improve your process over time, generate cash and hold onto
dearly to market share.
Some of the least-glamorous companies, surprisingly, have
also been around for a century or more: Colgate-Palmolive,
Procter & Gamble and Church & Dwight. Who would
have ever thought that you could consistently make money
initially only producing toothpaste, consumer staples and baking
What also binds these old-timers together is the fact
they've been paying dividends for more than a century. They've
enriched shareholders and grown dividend payments over the
years. Want to find more boring companies like this? Consider
the Vanguard Dividend Appreciation ETF or the PowerShares
Dividend Achievers Portfolio.
Often the best way to avoid financial icebergs is to hedge
disasters, don't increase your vulnerability to them. Be aware
that markets will forever be volatile. Don't over-invest in one
stock, industry or country. If you have most of your wealth in
your employer's stock, that's one huge iceberg. The worst events
are those you can't see coming, although you can always prepare