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The Greatest Value Investor You’ve Never Heard
Of
November 26, 2019 by Brandon Beylo
“We can have no finer role model. First and foremost, he was a value investor
— a member of that eccentric tribe that believes it’s better to underpay than
to overpay.”
Those words by James Grant were in reference to one of the greatest value
investors the world has ever seen. It’s not who you think it is. And no, you couldn’t
guess him given fifty chances. This investor remains off the beaten path, absent
from many investors’ Mt. Rushmore of allocators.
The investor is Floyd Odlum.
Buried somewhere in the junk drawer of investing lore, Odlum’s story remains
unknown. A quick Google search reveals his Wikipedia and IMDB pages. Yet in
typical deep-value fashion, the last link on the page revealed Odlum’s investing
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The Holy Financier’s blog post was that last link. The blog proved an excellent
springboard for a deeper investigation into Odlum’s early life, initial career and his
path to market fortunes. Although Odlum (pictured on the right) and Ben Graham
never met, their investment philosophies are one in the same.
We’ll journey through his upbringing, his days as a struggling lawyer and his initial
attempt at market speculation. Then we’ll see how Odlum turned $39,000 into
$700,000 in two years.
Life Before The Markets
Floyd Bostwick Odlum was born on March 30, 1892 in Union City, Michigan. When
Floyd was 16, his father — a Methodist minister — moved the family to Colorado.
Floyd stayed close to home, studying law at the University of Colorado. He
received his degree in 1914. Floyd bounced around in his first few years after
college. After marrying his first wife, Hortense in 1915, Odlum accepted a job as an
attorney for the Utah Power and Light company in Salt Lake City, UT.
Three years later, he found himself off the ski slopes and in the throes of New York
City. Between 1917 and 1918, Odlum worked for the Simpson, Thatcher and
Bartlett law firm, as well as the Electric Bond and Share Company. He settled down
with Electric Bond and Share Company long enough to gain the role of vice
president.
Dipping His Toes in Speculation
With a decent income from his job as a law clerk, Odlum started trading in the
stock market. He initially saw the market as a rich, fertile ground for speculative
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reader to business analysis. Lawyer to Wall Street Legend.
Soon enough, Odlum would be back. The starting capital would be the same. The
approach, anything but similar.
The United States Company
Odlum wasn’t just a great investor. He also had a knack for choosing the most
generic partnership names, such as his first “The United States Company”. The
partnership, formed in 1923, was a couple’s affair. Odlum, George Howard and
their wives seeded the partnership with $39,000 ($573K adj. for inflation).
What followed over the next two years was nothing short of incredible. According
to Odlum’s biography, The United States Company grew 17x from 1923 – 1925.
What started as a small partnership amongst friends turned into a $660,000
behemoth ($9.47M adjusted for inflation).
Odlum’s two-year CAGR is mind-numbing. If that wasn’t impressive enough, he
generated these returns while working full-time as a law clerk!
How did he generate such outsized returns?
Well, he was a deep value investor. He searched for fifty-cent dollars and scoured
every corner of the market. According to documents from the Eisenhower
Library, Odlum preferred two kinds of investments:
1. Utility stocks
2. Special situations
He defined a special situation as “an investment […] involving not only primary
financial sponsorship, but usually also responsibility for [the] management of the
enterprise.” The former lawyer wasn’t interested in flipping a business for a quick
buck, either.
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adjusted for inflation). It was around this time that Odlum began sensing euphoria
in the market. He smelled a top and he decided it was time for him to act.
The Formation of Atlas Corporation
In 1929, he rolled his original partnership into a new vehicle, The Atlas
Corporation. Wary of a market top, Odlum sold half his assets. He stayed in cash
and issued $9M worth of Atlas Corporation securities.
With $14M in cash, Floyd sat on his hands. Waiting for the next market crash,
which shortly followed.
Odlum was prepared and took full advantage once fear had fully gripped the
market and there was blood in the streets… His subsequent operations were
chronicled in an old newspaper article (courtesy of NeckarCap on Twitter):
“After the crash, Odlum, looking around quietly with more ready money than
almost anybody in Wall Street except [a] few of the big banks, noticed that the
trend in trusts had reversed.”
Odlum’s 1929 Strategy: Sit. Wait. Attack.
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Aircraft and airlines
Department stores
Manufacturing
Broadway stage productions
Hotels and buildings
But his bread and butter during the Depression was buying investment trusts. His
strategy was simple. He found investment trusts that had fallen so much their
stock prices were trading less than the value of their marketable securities. A
good example of this in today’s markets is Manning & Napier (note: I do not hold
shares).
He discovered he could buy these trusts, liquidate their assets, and reap large
profits for his stakeholders. He was buying dollar bills for $0.60 and he milked this
strategy for all it’s worth. He ended up buying and merging investment trust
twenty-two times. The newspaper article profiled these dealings:
“He figured out that by buying all the outstanding shares of a particular trust,
he was really buying cash or its equivalent at sixty cents on the dollar.”
When he didn’t have the cash to buy the trusts, he sold shares in his own company,
Atlas, to fund the purchases. After exchanging his stock for the trust’s stock,
Odlum would merge or dissolved the existing trust, keeping the cash and assets
within Atlas Corp.
This strategy helped grow his assets to $150M ($2.2B adjusted for inflation).
Between 1929 and 1935, Odlum invested (and controlled) many diverse
businesses. He owned Greyhound Bus, a little motion picture studio named
Paramount, Hilton Hotels, three women’s apparel companies, uranium mines, a
bank, an office building, and an oil company.
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The math is incredible. Odlum grew assets 384,515% in a bit over a decade. That’s
a 32,042% CAGR for asset growth.
And his early partnership returns are just as impressive. Odlum grew assets from
$39,000 to $6M between 1923 – 1929. That’s a cumulative 15,284% return. In
other words, Odlum compounded capital at an annual rate of 2,547%.
Life After Markets: A Love of Aviation
Odlum’s life was unique. His extracurriculars sprinkled with high-profile
relationships, a pioneer wife and bountiful philanthropy. After his divorce in 1935,
Odlum married Jacqueline Cochran. Cochran (pictured below) was a pioneer in
the field of women’s aviation. And while Amelia Earnhart garners most aviation
lore, Cochran’s track record is nothing to scoff at. Some of her achievements
include:
Flying solo on the ninth day of flying lessons
First woman to complete the Bendix race, a cross-country race from LA
to Ohio
Set flight duration record in 1937 flying from NY to Miami, FL
First woman to make a blind landing (1939)
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majority of his wife and Earnhart’s flights. He also pumped millions into the US
missile development program because, “I think the money could have been spent
better otherwise. But it’s too early to tote up the value of its products. My wife
thinks the moon shots were terrific.”
Health and Retirement
Odlum battled rheumatoid arthritis most of his adult life. The pain got so bad he
had to stop working. Yet even in retirement, Odlum conducted business. One
section in Odlum’s obituary shines light on his relationship with business:
“He often [took[ telephone calls on a rubberized receiver while floating in his
Olympic-sized swimming pool.”
Odlum entertained (and housed) some of America’s most prolific leaders and
talents. He dined with General James Doolittle, Bob Hope, Gloria Swanson, Walt
Disney, Nelson Rockefeller and Howard Hughs.
But of all these guests, none were more famous than President Dwight D.
Eisenhower. He and Eisenhower shared a close relationship. So close, in fact, that
Odlum carved out a piece of land for Eisenhower to live during the winters.
Eisenhower’s small piece of property on the Odlum Estate was known as
Eisenhower Cottage.
Bringing It Back To Investments: Three Takeaways
I want to finish this essay with three takeaways from Floyd Odlum’s investing
career:
1. You don’t need to be 100% invested 24/7
2. Boring is beautiful
3. Be a dumpster diver (with standards)
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Jesse Livermore, a man whose made (and lost) millions in the markets, praises
sitting on cash. Seth Klarman is known for his 40% cash balances during periods
of market froth.
If you want to beat the markets you must do things differently. Passive investors
are 100% invested, but they’re not worried about beating the market.
2. Boring is Beautiful
The United States Company invested in utility stocks and special situations. These
are boring corners of the market. Yet it’s these areas that catapulted Odlum’s
returns into the stratosphere. How can we apply this ‘boring is beautiful’
philosophy?
In today’s tech-driven market, many investors forget about the boring, slow-
growing cash producers. These companies are toll road operators, electrical
component producers, road builders. Boring businesses with not-so-boring
returns.
3. Be a Dumpster Diver (with Standards)
The stocks Odlum bought were the ones others hated. These companies traded
around 52-week and all-time lows. You wouldn’t find anyone talking about these
stocks at cocktail parties. Yet they offered outsized returns simply because
nobody bothered to look at the (potential) hidden value. Be a dumpster diver with
standards. You’ll find many companies trading around all-time lows that aren’t as
bad as Mr. Market thinks.
Sources Used:
https://www.eisenhowerlibrary.gov/sites/default/files/finding-aids/pdf/odlum-floyd-
papers.pdf
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https://pdfs.semanticscholar.org/e85e/5bb20ac461ed6ef05a5fa0590bab214fd3ef.pdf
http://theholyfinancier.com/floyd-odlum-deep-value-investor-never-heard/
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