Chapter 10 The Godfather of Wall Street

Managing the "sperm whale" of the Americans has various small problems, yet for the price, they still play a crucial role for them. Therefore, negotiations between them, the Electric Boat Company, and the US Navy quickly entered a substantive stage.

The meetings were always held in the conference room of the Electric Boat Company headquarters. The US Navy sent a broad-bodied general and a tall colonel as military representatives to the negotiations. They meticulously reviewed the situation of the Brazilian underwater tourism company represented by Zhang Hainuo — there were no issues with their identity or procedures, and the company's owner had official backing from Brazil.

Just a week later, the US Navy issued formal documents: agreeing to retire and sell the active submarine K- ahead of schedule to the Brazilian Walk Underwater Tourism Company for use as a sightseeing submarine. The dismantling of weapons and the conversion and overhaul work were delegated to the Electric Boat Company.

Because the anticipated conversion work would take two weeks or even more, Zhang Hainuo and his group decided to stay in Groton. The scenery of this seaside town was pleasant, and fishing in the quiet coves was very enjoyable. Every day, they took turns going to the shipyard of the Electric Boat Company to supervise the conversion work of K-1.

Because Zhang Hainuo had previously expressed the hope that this submarine would provide customers with a "realistic experience" of naval battles, coupled with giving Red Nose quite a few benefits in private, the Electric Boat Company turned a blind eye: only the critical firing mechanisms of the submarine's 4 torpedo tubes were removed. They even provided four solid torpedoes for "entertainment"; on the narrow foredeck of the submarine, they installed a 23-caliber deck gun without a breech lock — US Navy submarines before the K-class did not have deck guns, but the subsequent L-class, M-class, and AA-class all had this type of short-barreled gun.

Red Nose told Zhang Hainuo that during World War I, the Electric Boat Company purchased 50 of these guns from the Naval Engineering Bureau in one go. Nowadays, there were still more than a dozen of them lying in the warehouse. But according to the current strategy of the US Navy, there probably wouldn't be another batch of submarine orders before the next war!

Such modifications were sufficient for a submarine truly intended for underwater tourism, but Zhang Hainuo's people had no intention of wholeheartedly operating a so-called underwater tourism company. There was no need for experts to intervene; just a few technicians could restore it to at least seventy percent combat readiness in a short time!

Finally, according to the buyer's request, the Electric Boat Company painted K-1 all black because it was more in line with the "image of German U-boats in the minds of ordinary people". Regarding this, Red Nose and the American shipbuilders had no objections. After all, in terms of reputation, the US Navy submarine force could not be compared with German U-boats.

After the conversion work was completed, because of concerns about the continuous problems of this submarine during long voyages, the Electric Boat Company took the initiative to provide a large tugboat to tow the submarine to Brazil. Naturally, Zhang Hainuo had no objections. Once the route was determined, he telegraphed the personnel remaining in the shipyard, instructing them to spread the news widely that the Walk Underwater Tourism Company had introduced a retired US military submarine, preferably letting the entire state of Bahia know that the waters around Salvador would be frequented by "black U-boats" from now on. And Schneider Shipyard should also fulfill the company's promise and build a corresponding "submarine repair dock"!

With the matter of K-1 settled, Hessen boarded the tugboat provided by the Electric Boat Company and set off directly from Groton. Zhang Hainuo returned to New York with Anna. There, he had many things to attend to.

Some say that the financial market is where elites gather, and Wall Street in New York is where these elites compete with wisdom and courage. Wall Street, with its unremarkable appearance on the surface, saw vast sums of money flowing through its unassuming buildings every day, with profits and losses possibly occurring in the blink of an eye.

Before September, Zhang Hainuo invested $100,000 in a private fund called Granhe. When he visited the office of the fund manager again, he learned that his investment had gained a return of seventy percent. In other words, the initial $100,000 had grown...

The fund manager sitting behind the small desk was a petite young man just over thirty, with neatly combed black-brown hair. In today's Wall Street, Benjamin Graham was only moderately famous, but in the history of Zhang Hainuo's original world, he was a well-known "Godfather of Wall Street" and "Father of Security Analysis", and luminaries like Warren Buffett also came from his school.

Zhang Hainuo's encounter with this person was partly coincidental. Last summer, he and Balbas teamed up to speculate on the stocks of All-American Coffee — this would be illegal in the future, but in the 1920s, the relevant laws were not yet sound, and American companies' true situations were generally quite secretive, with insiders often holding valuable information, which provided opportunities for them to profit from the stock market.

In just one summer, Zhang Hainuo made over four million dollars through peripheral speculation on All-American Coffee stocks, while Balbas made three million. However, unlike Balbas's conservatism, Zhang Hainuo hoped to extract more profits from the stock market before 1929 and invest them in industry — when finance, real estate, and even agriculture collapsed, the American economy would plunge into an unprecedented Great Depression. Prices of houses, land, and crops would be extremely low, and with dollars, pounds, or gold in hand, it would be easy to acquire the industries of bankrupted companies at low prices, and there would even be opportunities to buy priceless antiques and treasures from residents at low prices.

However, on the other hand, Zhang Hainuo could not stay in New York for long. In this situation, finding a suitable agent became particularly important. In the process of studying economics, he learned about Keynes, Adam Smith, Graham, Buffett, Soros, Greenspan, and other famous figures. Some were economic theorists, while others were masters of finance, but in 1920s New York, only Benjamin Graham and his future partner Newman stood out as "rising stars".

To Zhang Hainuo's delight, he didn't have to exert much effort to inquire about Benjamin Graham. When he found Graham in the fall of 1923, the powerful immigrant from New York had already left Newburgh-Henderson-Lauber Company. There, he had risen from an unknown information clerk to an outstanding securities analyst. Since the beginning of the year, he had set up the Granhe private fund on his own.

Within the month of September, the fund's return rate reached seventy percent. This was quite an impressive achievement. Zhang Hainuo's "bricks" had already preliminarily proven the value of this "jade". Although he hadn't completed his epoch-making work, "Security Analysis," yet, when he was still a securities analyst at Newburgh-Henderson-Lauber Company, he received praise for his accurate judgment of stock investments — this was something Zhang Hainuo learned from his financial peers on Wall Street.

However, this time, Benjamin sitting behind the desk, although still polite, had a look of unresolved concern in his eyes. The fund's performance was good, so why was he worried?

Graham glanced through the investment data of the person in front of him and spoke in a deliberative tone, "Mr. Linke, your initial investment was $100,000, and according to the fund's performance during this period, you will receive a return of $70,000. We are currently discussing dividend distribution plans, and there are three options: first, distribute twenty-five to thirty percent of the earnings, leaving the remaining amount as your new investment in the fund; second, distribute thirty to sixty percent of the earnings; third, distribute eighty percent or more of the earnings!"

If the fund could maintain its current rate of return in the future, then naturally the first option would be most beneficial to investors, as this was akin to compound interest calculations. However, out of caution, investors would likely want to convert some of the earnings into cash.

Zhang Hainuo wasn't in a hurry to choose one. He asked, "Does Mr. Graham have any good suggestions?"

The young fund manager replied, "From the perspective of fund management, I hope that investors will accept the first option. This means the fund can quickly expand its scale, which would greatly benefit its operations! If we liken the securities market to the undulating waves of the sea, then the fund is the ship sailing on the sea. The larger the tonnage of the ship, the stronger its ability to withstand storms!"

"That's a good point, but in my personal opinion, the premise of doing so must be to ensure a stable rate of return for the fund. Only then will investors have enough confidence in their investments!" Zhang Hainuo "showed off" his knowledge of economics in front of this master.

Graham looked at Zhang Hainuo carefully, somewhat disappointed, and said, "Yes, that's exactly what many people are worried about! There's still a lack of confidence in the securities market and our fund's operations! I won't hide it from you, if I can't persuade at least half of the investors to leave the majority of their earnings as new investments, this fund will face dissolution!"

"Is it that serious?" Zhang Hainuo appeared surprised on the surface, but he knew that this "Godfather of Wall Street" ultimately established his position in the New York financial world through his own theoretical works and the Graham-Newman Company. In other words, in the trajectory of history, the Granhe private fund was just a transitional product.

Once this fund announced its dissolution, Zhang Hainuo's existing investments wouldn't suffer, but what interested him was Graham's next move — according to the course of history, he would join forces with Jerome Newman to form a new Graham-Newman Company, and from then on, embark on their own glory.

On this point, the young Graham seemed resolute:

"Yes, if the fund remains at its original size, I'd rather dissolve it!"

Zhang Hainuo pondered for a moment, "May I be so bold as to ask, has the fund's size already exceeded one million dollars?"

"It did before the dividends, but if the dividend rate exceeds sixty percent..." Graham shook his head, "we would almost return to the initial size!"

"So, now most investors are demanding the second and third dividend distribution plans?"

"Exactly, the majority insist on the third distribution plan!" Graham appeared very disappointed. This young man clearly didn't want to play the role of a small securities fund manager all his life; he must have had broader horizons.

"If most investors insist on this, dissolution wouldn't be a bad thing!" Zhang Hainuo said calmly. He quickly found an element of surprise, even displeasure, on Graham's face. Before Graham could speak, he continued, "Why not find some enlightened investors and establish a new fund company?"

Graham was taken aback for a moment, but he quickly speculated on the meaning behind these words.

"So, Mr. Linke intends to establish a fund company?"

"No!" Zhang Hainuo smiled, "If Mr. Graham intends to establish a new fund company, I will be the first to invest! However, I am eager to know how big Mr. Graham plans to steer this ship?"

Graham's gaze stayed on Zhang Hainuo for quite a while. He deliberately cleared his throat to make his voice more confident.

"Of course, the bigger, the better!"

"Then I look forward to Mr. Graham's giant ship setting sail soon. By the way, last fall, I just sold a lot of All-American Coffee stocks, and now this capital can be invested in the securities market at any time. It's just that I'm busy with my family's business in Brazil, and I spend less than five months a year in New York. Therefore, I've been looking for a reliable fund company!" Zhang Hainuo got up and handed a name tag to the somewhat stunned Graham. It had his contact address in Brazil — Schneider Shipyard.

As a figure in the financial world, Graham certainly knew about the "All-American Coffee storm" that had just occurred a year ago. As for the mysterious Brazilian shipyard behind All-American Coffee, it had been hyped up by the media. This shipyard had risen from obscurity to become the number one shipyard in Brazil and South America in just a few years, attracting attention with its formidable strength.

Just by flipping through last year's securities data, one could find that the market value of All-American Coffee stocks reached a peak of $242.17 per share in the fall, even if this "Austrian businessman" didn't sell at the peak, the capital obtained from selling two shares would still be over $400, four times the current value of the Granhe private fund!

The new fund company was finally established at the end of 1924. The two future master figures, one focusing on securities analysis and the other adept at managing and handling various complicated matters, stood behind them. Behind them, twelve shareholders provided nearly a million dollars in liquid capital. Such a scale was undoubtedly astonishing on Wall Street in the 1920s. What's even more remarkable was that the average age of these shareholders was under 40. It was said that even a member of the family of the tobacco company Danaman participated as a shareholder. Before the stock market crash in 1929, this fund won victory after victory in financial battles with its strong strength and astute judgment, and it withdrew from the stock market in time to buy safer gold and government bonds, which was also considered a classic by future generations.