The Banker’s Warning Against Passing Fads

Horace Rackham #investments #banking #money #FordMotorCompany

Horace Rackham needed a loan, but the banker wasn’t convinced. The year was 1903, and even though Rackham was a successful attorney with a keen mind, the bank president wondered what Rackham could possibly be thinking.

Rackham wanted $5,000 to purchase stock in a new company. If anyone should have known anything about the company, it would be Rackham; he was the lawyer who drew up the incorporation papers for his client. He was so convinced that the new business had promise that he wanted to do more than just represent its legal interests; he wanted to share in its earnings.

Horace Rackham (1853-1933)

The president of Michigan Savings Bank shook his head after hearing Rackham’s proposal. He had heard many schemes over the years, and the banker knew when to spot a financial disaster. His instincts told him that this was one of them. He told Rackham to put his money somewhere safer because this new company was not going to go anywhere.

Rackham remained convinced there was a promising future for this startup, so he sold real estate to cover some of the costs and managed to borrow the rest. With his $5,000 he became one of the founding investors of the company. At the first meeting of the stockholders, he was elected chairman of the board.

Fortunately, Rackham knew what he was talking about. The startup company did pretty well. It is still in operation today, in fact. In 2018, the company generated $160.33 billion in sales. You may not remember the name Horace Rackham, but you have probably heard of his client, Henry Ford, and the startup company: Ford Motor Company.

Completely lost to history is the name of the bank president who sagely advised Rackham, “The horse is here to stay, but the automobile is only a novelty—a fad.”

Read more fun facts about investments.

Read more fun facts about automobiles.

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