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John D. Rockefeller, Debt, and Wealth Creation March 26, 2008

Posted by shaferfinancial in Uncategorized.
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The Shafer Wealth Academy (www.shaferwealthacademy.com) is dedicated to teaching people about how wealth is created and making a independent life.  We can learn from the success of others.  It is really unfortunate that so much is not taught in schools about wealth creation and the financial world. John D. Rockefeller was the wealthiest man in the history of the world even more wealthy in his time than Warren Buffett and Bill Gates are now.  He was known as an exacting, very conservative, man whose first job was a bookkeeper.  To him the business world was an exacting world where numbers spoke volumes and everything else was secondary.  He spent his last 40 years of his life in retirement and is known as one of the greatest philanthropist ever. His Standard Oil company was demonized by the press and broken up as a monopoly by the politicians.

But how did this bookkeeper, who grew up relatively modestly, become wealthy?  His first company was a partnership with two older gentleman (he was 20) that was in the commodity business.  He felt his partners were purely speculators and wildly unpredictable.  He was the sober one, that constantly reviewed the books and made decisions based on pure rational thought and the numbers.  Where did the division appear between the partners and John D.?  In the 1860’s, during the Civil War, Rockefeller borrowed $100,000 from the banks to expand his oil refinery business.  The partners, these wild speculators, were aghast.  Now, $100,000 was alot of money back then and the companies profits were less than $17,000 at the time, so we can see that there was some reason for their concern.  But to the not yet 25 year old Rockefeller, this was what the numbers told him.  He believed the oil business was here to stay and he wanted to be a big player in it.  So for him, borrowing this amount was not a risk, but a neccesity.  His main concern was that the bankers would look at his partners and decide they were too great a risk.  So Rockefeller used this schism to jettison the partners and buy the company for himself.  The bankers trusted the sober, meticulous, Rockefeller and had no problem lending him more money as the numbers told Rockefeller to do.  Later in life, after he was already the richest man in the world, he would eschew the banks and borrowing money, but that was more about his personal issues with bankers like JP Morgan, and his lack of need for more capital than anything else.

Borrowing allows one to create leverage.  It is why most people are able to create wealth through their homes.  And it is why most people fail to create wealth elsewhere.  Understanding the numbers and what they tell you is not as hard as most people would have you believe.  The Shafer Wealth Academy will teach you how.

Now, there are many people out there that will tell you debt is bad and should be avoided at all costs.  No doubt credit card debt to buy consumer goods is not the best thing to do; John D. would be flabbergasted at such outlandish consumerism!  But, debt to take advantage of business opportunities is a different animal.  Financial leverage, building business leverage, and leverage to create value is one of the basis for creating wealth.  When evaluating investments the first thing one should look at is the leverage created.  If no leverage is created, then the returns can only be miniscule.  It is the law of money.

I wonder if all those financial planner folks who advise their clients and write books about avoiding debt, really understand that they are making sure their clients will not become wealthy?  I assume they are more concerned with not getting sued than in helping their clients create wealth.  At the least they are participating in what many workers for Wall Street companies describe is their goal; Turn your clients wealth into your wealth!  Warren Buffett describes Wall Street as a place where people drive their Rolls-Royce to Wall Street and turn their money over to people who ride the subway to work!  

Learn about wealth.  Learn about Leverage.  Don’t turn your money over to Wall Street.  Sage advice from those that have created wealth. 

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Comments»

1. nice post! - April 14, 2008

nice post!…

It is for sure that getting confirmed documentation on this matter can be difficult….


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