Blog Single

by Chris Weber – The Weber Global Opportunities Report July 15, 2014

As an investor, you are continually hearing quick-drawn, popular conclusions about some asset or other.

That this agreed-upon, mainstream and conventional “wisdom” is usually the opposite of the real truth I think I have shown many times in my newsletter. Grasping that fact at the right time is often the key to investment success. Not by short-term trading, but by buying into areas that are bargains because the conventional wisdom is that they are valueless, or selling assets that the mainstream wisdom has in a herd-like fashion bid up too high.

Becoming a good investor means being able to question the conventional wisdom, the agreed-upon story that “everyone” believes in.

Not that the conventional wisdom is always wrong. But there are clearly times when it is. I’d say probably more times than not.

I thought about this recently while conversing with someone on another area entirely, at least on the face of things. In fact, history is usually a string of agreed-upon stories long since set into stone. The stories of entire nations or empires are learned in school, and very rarely questioned.

Anyway, this man was talking away on how he loved the period of America’s Founding Fathers, and how much greater that group was than the group that governs the US now. I wasn’t going to disagree with that statement: much of it is true. He even had his favorite-by-far: “Jefferson”, he sighed.

But the more you actually know about this group, the specific individuals that together come to be called “The Founding Fathers”, the more you realize that the picture is considerably more complicated than the ‘short and sweet’ versions taught in schools.

Moreover, when you come to realize this, you also realize that there is nothing one can do to change the agreed-upon story. To me, it becomes an intellectual exercise to show that even conclusions that “everyone” is sure about are, well, not always what they seem. And of course the implications of this exercise to the world of investment, where you can act against the conventional wisdom, are very obvious.

It’s hard to know where to start. For instance, US evangelical Christians hold that most of the Founding Fathers were true Christians. By this they mean that they all accepted the divine Jesus and took the New Testament as (quite literally) “gospel”.

I believe, at the risk of angering people, that there were only two of the Founding Fathers (at least the ones whose names people still remember) who truly fit this bill. The others had to be quiet about their “heresy”; they did not live in a tolerant time. For instance, Catholics were regarded by the others as barely Christians at all. There was one major Catholic Founder, Charles Carroll, who was safe because he was the richest man in America. The other (Protestant) Founders had to step lightly about their true religious beliefs. If they wanted political futures they could not publicly say otherwise. And however else these Founders differed, they were usually very ambitious men.

However, the two who were true Christians were not as ambitious as the rest, and were willing to sacrifice their political careers for the greater good for their country, as they understood that good to be.

Strangely enough, they agreed with each other in almost no other way: Politically, they were about as far apart as two people could be back then.

Their names were Patrick Henry and John Jay. Modern-day political labels are hard to apply to the Founders’ differences. But you could call Henry a man of the extreme left and Jay one of the extreme right.  By that I mean that Henry was against a strong central government, the US Constitution, and wanted as much power as possible diffused amongst the states, the counties, or even individuals. The whole “right/left” divide started with the French Revolution. The Jacobins–and Jay would have unfairly called Henry one, just as Henry might have unfairly called Jay a “monarchist”–sat at the extreme left side in the French National Assembly. This was the origin of the terminology. Moreover, how you viewed the French Revolution became the start of political parties in America. Ever since then, people have used “left” and “right”, but the criteria is always changing. Since this article is about how most people run with the herd when they think, this too is an example of calling someone “right” or “left” wing can involve a lot of loose thinking.

Jay, on the other hand, was a Federalist who viewed Henry’s democratic ideas with alarm: the common people were not to be trusted and it was the wealthy few who knew best for them. Power should be held, certainly in financial form, by a central bank and a generally aristocratic educated minority, like himself. On the other hand, while Henry was a slaveholder (not proud of this, but still…), Jay was far ahead of his time as believing that human slavery was in no sense Christian and a moral abomination. From Wikipedia: “His first two attempts to end slavery in New York in 1777 and 1785 failed, but a third in 1799 succeeded. The 1799 Act, a gradual emancipation he signed into law as Governor, eventually gave all slaves in New York their freedom before his death in 1829.” Believe me, this was not a popular position to take. When he died, the tide had turned and it would have been hard to push that law through. Slavery had become so entrenched by the 1820s that wise men realized that only a bloody civil war would decide the issue.

But however you may disagree with the political view of either, what you can’t do is call them political trimmers who sold out their views for political gain. They took very unpopular positions because they believed them to be correct, and Christian in the truest sense.

It’s not Henry that I want to focus on here: he was a great orator famed for saying “Give Me Liberty or Give Me Death” when, before the Revolution, that was not very popular. But by the time George Washington’s first term ended was pretty much retired, dying not long after. Washington offered him many posts, including Secretary of State, but Henry, unhappy at the course things were taking that he believed betrayed the Revolution, declined them.

John Jay is much more interesting, for my purposes here. He was the first Chief Justice of the US Supreme Court, and could have stayed in that office until he died fully forty years later. The absence of John Marshall from that job could have set the US legal system on an entirely different path.

Instead, Jay resigned that high office to do something that he knew would be committing national political suicide. Not to get too much into it, because it is not the point I want to make, Washington asked him to resign and go to London to sign what became known as “Jay’s Treaty”: a document hated by nearly all Americans at the time but something that  saved US independence. Put simply, the British were angry that they had let the American colonies slip through their fingers and become independent. It became British policy to once more try to conquer the US.

In the early 1790s, they came up with a long list of demands any one of which being denied could have caused a new war. Washington knew that American institutions in 1791 were too new and fragile to survive such a war. On top of that, the new nation simply did not have an army or navy. Jay realized this too, and they both agreed that the US needed another generation to become strong enough to face the British in another war.  Jay would go to London and simply agree to virtually everything the British wanted. Anything to avoid war and buy America, perhaps, an extra generation of peace. The British were flummoxed: with the Americans agreeing to their demands, they could not make war on them. And by the time war finally did come around 20 years later in 1812, America was ready.

No one blamed Washington for this “cave in” to British demands: Jay took the blame.

As interesting as this is, it’s still not what I want to talk about. As an older man, Jay said something very mysterious. In the 1879 edition of   Thomas Jones’ ‘The History of New York in the American Revolution’, from the introduction written by Edward F DeLancey :

“In 1821, Chief Justice John Jay said to his nephew William Heathcote DeLancey: “Let me tell you, William: the true history of the American Revolution can never be written.” ‘Jay declined to give his reasons, saying’, “You must be content to know that the fact is as I have said, and that a great many people in those days were not at all what they seemed, nor what they are generally believed to have been.”

For instance, anyone who thinks Thomas Jefferson an “Apostle of Liberty” should read a book by Leonard W Levy called “Jefferson and Civil Liberties: The Dark Side”. Not at all a hatchet job on Jefferson, it shows that while Jefferson was a libertarian before and after he was President, while he actually held office he did things that no one else could have gotten away with. After all, ‘everyone knew’ that Jefferson stood for limited government.  In fact, his attempts to punish those who he disagreed with are breathtaking. Indeed, if any president today did the sorts of things Jefferson did, especially in his second term, he’d almost certainly be impeached before he could plunge the nation into a deep depression.

I’m not out to “get” Jefferson. I just want to show how the agreed-upon stories about him–and many, many others of his time–are not true.

In fact, if you mention the word’s “Jefferson’s hypocrisy” today, you’re almost sure to hear how he slept with (or raped) his slaves. The real story is much more complicated than this, and to be honest, knowing it, I would not cast any stones at him. In fact, I’m not even sure that–short of being celibate from his late 30s for the last 44 years of his life–he could have done anything different. In fact, even the conventional wisdom against him is, if not a lie, then a half-truth (or in this case a quarter-truth).

I’m not sure this is the place to go into the story, so if you’re not interested you can just skip ahead. To sum it up, the slave Sally Hemings was not just “any” slave.

Her white grandfather, Peter Hemings, had been an English sea captain. Her grandmother was a black African slave whose name we are not even sure of. They had a daughter, Betty, around 1735. Betty finds herself sold to the Virginia plantation of one John Wayles. Three times a widower, after his third wife dies in 1761, he takes Betty (around 26 years old) as his concubine.

This arrangement is far from uncommon. They have six children, the youngest daughter, called Sally, is born around 1773. So doing the math, this Sally is one-quarter black, three quarters white. By all accounts, her hair is “flaxen” and her skin quite light. (But in those days, just ‘one drop’ of ‘black blood’ made you legally black.)

Now, almost exactly 30 years before Sally is born, Thomas Jefferson is born in 1743 not far away. Five years later Martha Wayles is born to John Wayles and his first wife. A bit over 20 years later Martha meets Thomas Jefferson, then in his late 20s. They marry in 1772 and by all accounts they have they have a happy marriage. Clearly, in their ten-year marriage she becomes pregnant six times (and, being a widow herself, had another child before she met Jefferson).

At age 33, in 1782, likely as a result of being so fragile, and with so many pregnancies with so little time to rest between them, she dies. But before she does, she extracts a death-bed promise from her 39-year-old husband. Her own mother dying so early, and having been brought up by two “evil stepmothers”, she makesThomas Jefferson promise that he will never marry again; never take the chance of a similarly bad step-mother in charge of her children.

Keep in mind that the slave Sally Hemings and Jefferson’s dead wife Martha have the same father, John Wayles. As Sally ages, people see the resemblance between the two women, who are half-sisters: one free, one slave.

Jefferson follows the death-bed promise and never does take another wife. From Martha’s death in October 1782 to his own in July 1826 almost 44 years pass.

In or around 1790 Jefferson probably begins a relationship with his dead wife’s half-sister, the slave Sally Hemings, who is then 19-20 years old. She has five children. Alone among the slaves on his plantation, Jefferson frees each of them as soon as they come of age.

Jefferson is a horrible money manager, always living beyond his means. But it is not all his fault. Upon his father-in-law John Wayles’ death, he takes over Wayles’ debts. However, these debts are all denominated in British pounds. When the Revolution came, the Americans started their own currency, a paper dollar. Backed by nothing, in the four years until March of 1780, it loses nearly all its value. In that month, two zeros are lopped off in a currency re-valuation which really doesn’t work. To sum it up, Jefferson’s debts are denominated in a very strong currency, while his income is denominated in a collapsing currency. That’s a horrible combination and Jefferson is always, for the rest of his long life, skirting bankruptcy.

I’m bringing this up because like all the other early US Founders from Virginia, Jefferson leaves office nearly bankrupt. Like most of the rest of them (Madison, Randolph and Monroe), he dies in rooms empty from furniture sold off to raise money. Like the other plantation-owners, his only real wealth is in his slaves. For him to free even five (out of a total of 80-100) is an extraordinary act: it alone pretty much tells that these are not “normal” slaves.

It’s long been odd to me, from a personal financial standpoint, to note that nearly all the slave-holders end up so poor. Even as the institution of slavery starts to be defended around 1830 instead of viewed with shame as had been in the 1780s, in actual financial strength, both individual and collective, the slaveholding states keep falling farther behind the North. Maybe this is because they plant the same crops on the same tiring land with labor that can hardly be eager workers.

In any event, the young Jefferson of the 1770s wants to ban slavery, gradually. But as the years go on, he is financially trapped and even though he somehow comes to terms with his slave-owning, predicts ultimate civil war.

I’m just taking Jefferson as an example. But the truth is that most of the Founders–from George Washington on down– are very complicated men. The more you know about them: really know, through their letters, their lives, or just things as mundane as their balance sheets, you see that, as John Jay said, “a great many people in those days were not at all what they seemed, nor what they are generally believed to have been.”

However, most people, now as then, are content to

say and believe what all of those around them are also saying. This is certainly the case in political opinion, and about that you really can’t do very much. But it is also the case when it comes to mainstream wisdom about investments. Luckily, you can do an awful lot about that.