The world’s greatest investors: Joseph Kennedy
Unethical to his critics, Joseph Kennedy merely claimed to be merely an astute speculator.
Joseph Kennedy, father of John and Robert Kennedy, was born in 1888 into an Irish Catholic family. He went to Harvard and graduated with a degree in economics in 1912. Using loans from friends and family, he bought a controlling stake in the Columbia Trust Bank, becoming its president aged just 25.
In 1919, he would join the stockbrokers Hayden, Stone & Co, before setting up his own investment company. Between 1934 and 1940, he was involved in politics, first as the chairman of the new Securities and Exchange Commission, later as ambassador to Britain. He would continue to invest until incapacitated by a stroke in 1961.
What was his strategy?
Kennedy's critics alleged that much of his success came from unethical stockmarket manipulation, driving up the value of stocks by gossiping with powerful men before quietly dumping them on unsuspecting investors. Kennedy himself claimed to be merely an astute speculator and such actions were not illegal at the time.
He also made a lot of money in the 1920s from investments in the early film industry as well as in shipping. After he left politics he would take advantage of the Depression-era collapse in property prices to cheaply acquire prime commercial real estate in New York and Chicago.
Did this work?
By 1957 his fortune was estimated at up to $400m (about $3.5bn in today's money). This made him the 19th richest man in the US. The trusts he set up for his family still continue to pay out millions to his many descendants. The value of the extended Kennedy family fortune is today around $1bn.
What were his biggest successes?
When his shoeshine boy started giving him stock tips, Kennedy dumped his stocks before the Wall Street Crash in 1929. One of his best buys was Chicago Merchandise Mart. He bought it for $13m in 1945; 53 years later the family trust sold it for $575m (plus $50m to cover the mortgage). Kennedy paid only $1m upfront, borrowing the rest, so the family's annual return from price rises alone was 13.6% (compared with 11.8% from stocks).
What lessons are there for investors?
Stocks tend to provide higher long-term returns than most other asset classes, but, as Kennedy shows, you can get strong returns from investing in real estate, especially if you invest at a time when prices are at a low level, select areas with plenty of potential and use leverage to further enhance your returns.