David Rosenthal: evaluation

Transcript context

…Yup. The last thing I want to throw out is, this period between 1890 where we're ending this episode to 1900, they grew tremendously. They had annual earnings, where we're leaving the story off of somewhere between $10 and $20 million, which inflation-adjusted is like 30X. It's really 300–500 million in terms of the amount of earnings profit that they were generating per year in today's dollars. By 1900, they’re 6X that. So over a decade, they actually grew tremendously. It depends whether we're thinking about the business in this $10 million to $20 million era or in the $60+ million dollar era, by the turn of the century. I think that gives you a good shape of like, this is a business that was spinning off cash, David, the way that you were just describing for us, that employs 100,000 people that kept America and Europe's lights on. Because it's been so long since this happened, we don't have SEC filings telling us here is literally the amount of value they were able to capture versus create. I think the way I would look at this one and talk about this is, you can tell from the business practices that we've harped on this entire episode—every time they created value, they looked around to capture every single scrap of it that they possibly could rather than let consumer surplus exist, or their competitors participate in the upside that they were creating or partners. The numbers that we have, scant data such as it is—I wish we had PitchBook back in the day—I think they're also misleading. They do seem a little small like, wait a minute, you guys are talking about how this is a business on the scale that no other business in America has ever been before. But inflation-adjusted, even by 1900, you're talking about a few billion dollars of cash flow. That's dwarfed by companies today. I don't think these numbers tell the whole story because so much of the capital in this business was, a) being recycled, and b) not accounted for because of the crazy decentralized trust structure. We'll talk about this much more in the next episode. But when it ultimately gets broken up, you said at the top of the show, the children companies that come out of Standard Oil—Exxon, Mobil, Chevron, the bulk of British Petroleum now, and Amoco, all of these companies. It wasn't until the rise of the FAANG era in the last 10–15 years, before that, ExxonMobil was by far the largest market cap company in the world. That was just one of the children that came out of this company. The value that was tied up here was immense. That's a much better way to look at it, you're right. I also think inflation adjusting these things is probably the wrong way to look at it. I was thinking about this more in the context of Rockefeller’s personal wealth, which we'll dissect in-depth in the next installment here. Sure, you can inflation adjust wealth and you can inflation adjust profits, but what you should be doing is looking at them as a percentage of the GDP at that time. Let's look at 1900. Standard Oil, in 1900, produced $60 million in earnings. Rather than inflation adjusts that, let's look at it relative to the total GDP, which was $24 billion. So $60 million, divided by $24 billion. So 0.25% of the entire country's GDP is Standard Oil’s profits. I suppose GDP really would be based on revenue. Assuming they had 33% operating margins, I'm kind of pulling a number out of thin air, but that feels reasonable.…

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