The tectonic plates of economic life rumble and shift. As ever, market watchers are obsessed by big themes — and the demand for predictions about them even though so many past predictions have turned out wrong. Right now, we’re gripped by the endgame for Greece, the timing of the first US rate rise, the future of energy prices given Opec’s decision to maintain output above demand, the slowing of Chinese industrial growth, and the unresolved destiny of the global debt bubble. Yet we also know that wealth creation is fundamentally a matter of individual risk and endeavour, often pursued in defiance of the adverse alignment of market forces. On that basis, it is a constant theme of this column that personal stories are more informative than arid analysis of data and trends.
I’m guessing, for example, you’d enjoy knowing more about 75-year-old Jorge Paulo Lemann, ‘the richest man in Brazil’, whose rumoured interest in bidding for Diageo caused the food-and-drink giant’s shares to leap on Monday morning. He turns out to be a former national tennis champion, Wimbledon competitor and Davis Cup representative for both Brazil and Switzerland, where his father came from and where, following a kidnap attempt against his family, he keeps his home. He never speaks to journalists, but in a speech in 2011 he revealed that as a young man he learned more about risk-taking by surfing a 30-foot breaker on Copacabana Beach than he did as an undergraduate at Harvard: ‘I took the wave and felt the blood go to my feet. It was a lot faster than I was used to and a lot taller but I went for it, and I managed to get out before it crashed.’ Quite a cool dude, then.
Having built his own investment bank and later sold it to Credit Suisse, Lemann now operates through a private equity firm called 3G Capital that has already acquired a major stake in the Budweiser brewer Anheuser-Busch InBev as well as the Burger King chain and (in partnership with Warren Buffett’s Berkshire Hathaway group) the ketchup maker H.J. Heinz, which it is in the process of merging with Kraft Foods. As a collector of global brands, 3G must be well aware of the attractions of the Diageo portfolio, which includes Smirnoff vodka and Johnny Walker Scotch among many others.
The homespun Buffett is normally wary of private equity players, who he regards as rapacious short-termists in contrast to his own philosophy of picking sound companies and investing in them ‘for ever’. He makes an exception for Lemann, who he has called ‘classy’ and ‘a good friend’, but that doesn’t mean the 3G crew are pussycats: at Anheuser-Busch they banned free beer for employees, and the favourite phrase of Lemann’s long-time associate Carlos Alberto Sicupira is reported to be, ‘Costs are like fingernails, you have to cut them constantly.’ Diageo executives had better sharpen up.
When I was apprenticed here long ago, my predecessor Christopher Fildes warned me against ‘letting old villains off too lightly’. But I can’t help feeling a pang of nostalgia for the cohort of 1980s bad boys exemplified by British-born Australian Alan Bond, who died last week aged 77. A local folk hero and darling of Bob Hawke’s down-under Labor government after his 1983 America’s Cup yachting victory, Bond borrowed himself to perdition while jousting with Tiny Rowland, Kerry Packer and other corporate sharks — and eventually served four years in jail for various frauds, including some hanky-panky over the ownership of Édouard Manet’s masterpiece ‘La Promenade’. At the end of his life Bond rebuilt a fortune — to the irritation of unpaid creditors in his 1992 bankruptcy — and told a student audience at Queensland’s Bond University (which he endowed in his heyday, and which kept his name despite his fall from grace) that they should ‘never, never give in’. The government of Western Australia apparently contemplated giving him a state funeral.
Was he admirable? Of course not, but like his nearest British equivalent, the boxer turned ‘leisure tycoon’ George Walker, he was a battling rogue who brought colour to the business scene — unlike the shifty backroom financiers of recent times. And, as is proper in a throwback to a bygone era, Bond’s story is a reminder that the law always catches up with old villains in the end.
Speaking of former times, the first City trader known to have used super-fast communications to deal profitably ahead of the market, foreshadowing Michael Lewis’s Flash Boys and the alleged activities of ‘Hound of Hounslow’ Navinder Singh Sarao, turns out to have been Nathan Rothschild — immediately after the Battle of Waterloo, of which the bicentenary falls next week. A Rothschild messenger left Brussels in the early hours of Monday 19 June 1815 with news of Wellington’s Sunday-evening victory over Napoleon, crossed the channel in a Rothschild boat and probably reached London by a relay of fast horses that evening — beating the courier of Wellington’s official despatch to prime minister Lord Liverpool by some 40 hours.
The resumption of war against France following Napoleon’s escape from Elba in February had depressed government bonds, and on Tuesday 20 June Rothschild was able to make ‘great purchases of stock’, according to one London paper, ahead of the rally that followed. Legend has it he made a fortune that day on a scale akin to George Soros’s nine-digit coup against sterling on Black Wednesday of 1992. But I’m grateful to my friend Professor Richard Roberts of King’s College London for explaining (in Financial World) that — given the maximum levels of daily turnover in the two major classes of government paper, Consols and Omnium — he could in fact only have profited by about £15,000, equivalent to no more than a handy £1.2 million today.
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