Finance and economic history is fascinating. And I learned a lot recently reading Cynthia Crossen's new book, The Rich and How They Got That Way, Crossen, a senior editor at the Wall Street Journal, tells her story about entrepreneurial wealth-creation through the ages with ten biographical sketches--nine men and one woman. Her characters include Machmud of Ghazni a thousand years ago, Mansa Musa of West Africa in the 1300s, Hetty Green in late 19th century America, and Bill Gates of Microsoft. Her stories are well told, and Crossen deftly weaves in social and economic analysis into each sketch, although I could have used more analysis.

Despite its title, this isn't an investment book. But her stories offer many money lessons. One that struck me came from reading Crossen's chapter on Hetty Green. Hetty lived from 1834 to 1916. She is a fascinating character who earned a fortune trading stocks, bonds, and real estate. Hetty was greedy, miserly, and mean-spirited. When her son badly injured his leg, Hetty made the rounds of the free clinics in Manhattan and Brooklyn, hoping to get him treated as a charity case. Still, she outmaneuvered the rapacious men who dominated America's 19th money frontier at a time when women were not welcome.

Here's the investment insight. Hetty always had plenty of cash on hand. Whenever the stock market went through one of its periodic panics, she had the money to pick up good companies and properties on the cheap. Today, many investors treat cash as trash. Cash drags down stock market performance. Yet cash is valuable for the investment options it opens up whenever the market takes a severe downturn.

I don't know when a big market crack will happen. It could be next week, six months from now, or in three years. But when it does, buyers with cash will profit handsomely. Cash isn't trash. It stacks the odds in favor of an investment windfall over the long haul.

 


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