Do you want to know the secret behind Xerox Corporation’s success? What causes the stock prices to rise and fall? What is meant by insider trading? Did you know about Ford Motors’ major flop?
You will learn about these and more from this book. The author John Brooks is a long-time contributor in the New Yorker. He has written several best-selling books on business and finance.
This book was first published in 1969. Bill Gates considers Business Adventures as the best business book he has ever read.
The Little Crash in 1962
The stock market crashed for 3 days. It began on a Monday morning. Dow Jones reported a decline in the price of major stocks. By lunch time, the people are already panicking.
Individual investors crowded the Merrill Lynch office at Times Square. People wanted to sell their stocks immediately. The brokers did their best to handle the situation. They tell people to calm down and keep their stocks. But the investors cannot be persuaded.
When the blue chip stocks go down, the market comes along with it. AT&T, IBM and Standard Oil stock prices went down further because of the extreme panic among the investors. The amount of stocks lost that day was up to 20 billion dollars.
What pacified the situation are the owners of mutual funds. By nature, mutual funds are conservative and low-risk. The owners must buy some stocks first before they can be allowed to sell.
While the rest of the investors sell their stocks, the mutual fund owners kept their own and even bought more. The situation slightly got better by Tuesday morning. Thursday marked the end of the crisis.
Investors are “very clever in inventing reasons” for a sudden fall or rise in stock prices. They would offer graphs and analysis in the news. But the stock market fluctuations really just depend on the mood of the investors.
As one stock market expert said, “It is foolish to think that you can withdraw from the Exchange after you have tasted the sweetness of the honey.”
The Fate of the Edsel
The Edsel is a medium-priced car produced by Ford Motors in 1957. It was a major flop. According to the Time Magazine, “The Edsel was a classic case of the wrong car for the wrong market at the wrong time.”
The Edsel went against the popular trend. American cars in the 1950s are long, wide and low. But the Edsel team wanted the new model to stand out and be immediately recognized from the others.
Aside from the unusual design, the Edsel creators chose a unique name. The new model was named after the only son of Henry Ford.
It was predicted that 200,000 Edsels will be sold within first year of release. But after 2 years, only 100,000 units are sold. Ford lost around $350 million dollars on the Edsel. Eventually, it was pulled out from the market.
Ford committed the common mistake that entrepreneurs make. And that is to create the product that they want and not the product that the market wants.
There was one man who staggered into a bar and ordered a double shot. He exclaimed that the dashboard of his brand new Edsel had just burst into flames. Other drivers complained about oil leaks, sticking hoods and poor paint.
Ford stocks dropped for 2 years after the Edsel. But the company recovered eventually with the cars Falcon, Comet and the Mustang. The Edsel creators remained in the company but many salesmen and dealers lost their job.
Insiders at Texas Gulf Sulphur
Insider trading happens when executives and employees use their inside knowledge to trade on their company’s stocks. This is the crime that Texas Gulf Sulphur officials repeatedly committed.
The value of sulphur is decreasing that is why Texas Gulf launched a mining expedition. The Kidd-55 was a popular mining site in Ontario, Canada. Gold used to be abundant there.
The engineer and geologist did the first drill hole. At 150 feet, they discovered zinc and copper. The geologist told the chief geologist about it. The chief geologist called the vice president. Then the vice president called executive vice president. All of them flew to Canada.
The team continued on the exploration. Meanwhile, the men started to make their move. They knew that they have hit something big underground. That was how the scam began.
The executive vice president bought 1,400 shares of Texas Gulf. The engineer bought 200 while the vice president bought 100 shares. The chief geologist tipped his wife to invest while the geologist tipped his friends.
On the third drill hole, the team reached 600 feet. They found out that aside from zinc and copper, there is also an abundant supply of silver. 25 million tons of ore were discovered in Texas Gulf’s mining site.
News spread from Ontario to New York. The Herald Tribune had the story on front page. On the day of Texas Gulf’s press conference, the engineer bought 200 more shares. The company secretary also called his broker to order 600 shares.
The Texas Gulf trial ensued on April 1964. The strong case was filed by the Securities and Exchange Commission. After a series of court trials and appeals, the S.E.C. finally won in 1968. The men wer found guilty of their crimes.
Xerox, Xerox, Xerox, Xerox
In the 1880s, if a lawyer or a businessman wanted several copies of a single document, he would order the clerk to do it by handwriting.
Three copy machines were released in the market including Kodak’s Verifax. However, it produced damp copies which had to be dried first before use. The breakthrough came from Xerox Corp which manufactured the most reliable copy machine.
In 1966, Xerox sales reached to 500 million dollars. The company had to get rights for the word “Xerox” because it became widely used in the common language. The inventor Chester Carlson made it to the Fortune list of richest people.
Xerox beat every other copy machine in existence. But that is not the only reason for the company’s success. The people of Xerox have a purpose that is bigger than themselves. Executives call it the “Xerox’ spirit.”
In just one year, Xerox donated almost 4 million dollars to various charities and universities. Joseph Wilson, the company president, is a humble and soft-spoken man. He leads the projects of Xerox on social responsibility.
Sometimes, stockholders would complain that Xerox is giving away their money. There are also times when Xerox is criticized by the public for taking a stand on social issues.
But Joseph Wilson has this to say, “Issues like university education, civil rights, and Negro employment clearly are our business. I’d hope that we would have the courage to stand up for a point of view if we thought it was appropriate to do so.” Surely, the Xerox’ spirit cannot ever be copied.
You learned about the stock market crash in 1962. You learned about Ford Motors and the failed product Edsel. You learned about the insider trading scam at Texas Gulf Sulphur.
Finally, you learned about the success story of Xerox. The company has the winning product but more importantly, it has a great sense of moral responsibility.
Xerox has a purpose bigger than profit and individual interests. That is what makes the company achieve long-term success.