Gaining an Edge
When it comes to investing, the holy grail is an edge, a piece of specific knowledge that no one else knows.
If the information is meaningful enough, and the investment big enough, this type of knowledge can be worth millions, if not billions. The trouble is, finding an edge is maddeningly difficult. Everyone wants a shortcut, but a shortcut rarely exists.
Gaining an edge takes work.
The story of Jim Fisk is a prime example. Coming of age at the time of the American Civil War, Fisk was a natural-born hustler who dreamed of fame and fortune. Those two things would eventually turn him into a crook. And his lust for the good life eventually got him killed.
Fisk had the flair of a carnival barker. He could tell a good story. Fortunately for Fisk, he had a knack for convincing wealthy individuals to buy into his business ideas.
Just as the Civil War began, Fisk saw his first opportunity to profit from the chaos and conflict. Cotton, grown in the South, was in short supply at mills in the North. Fisk would risk his life buying cotton and then smuggling it to where it was needed most. His venture was profitable but relatively short-lived.
Fisk then took note of the money being made on Wall Street. News from the battlefront would send stocks soaring high or spiraling down. Fisk was sure he could exploit these opportunities. Alas, after gathering money from other investors, he was caught up in a brutal bear market. He lost everything he had – his money and that of his investors. Fisk left New York City penniless and depressed.
Always scheming, though, Fisk soon hatched is wildest idea yet – one that would make him a fortune.
The Civil War was seemingly coming to an end. It looked like Ulysses S. Grant’s Union army would soon overtake Robert E. Lee’s Confederate army.
Fisk picked up a newspaper one day and happened to notice that bonds issued by the Confederate states were trading in London at 35 cents on the dollar. But Fisk knew those bonds would be worthless if the Confederate army lost the war. The Confederate states would have no way of paying back the bonds.
Fisk also knew that the trans-Atlantic telegraph system, which had connected the United States and England with a free flow of information, was inoperable. Fisk saw it as an opportunity. An edge.
If he could gain knowledge of the war’s end and use that information to trade the Confederate bonds in London before anyone else knew, he would be rich.
His ambitious plan called for raising money from wealthy individuals – preferably with questionable morals. With that capital, he would buy the fastest steamship on the market and station it in a port in Nova Scotia, the shortest distance to cross the Atlantic. He would also repair more than 50 miles of telegraph line to Nova Scotia. And finally, he would dispatch a trader from Nova Scotia to London to trade the Confederate bonds as soon as the war was over.
Fisk knew that his plan could land his trader in London days before the news would otherwise travel across the ocean. That timeframe was his advantage.
The plan worked flawlessly.
Fisk sat in the telegraph office day and night, waiting for the chatter of the war’s end. As soon as word arrived, Fisk bribed a telegraph operator – wartime protocols required them to suspend all non-military communications – to send a one-word message to Nova Scotia: “Go.”
The whole scheme netted a profit between $3 million and $4 million, worth more than $50 million today.
Knowledge is power. But as Fisk’s gambit proves, knowledge isn’t enough. It also takes work to turn that knowledge into profit.
As it was in 1865, it still is today.