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Joseph P. Kennedy's $45 Million Windfall 1922 Pond Creek Coal Trade

Joseph P. Kennedy (or JPK), patriarch of the Kennedy Political Dynasty, has a well-known biography. Starting out as a Wall Street wheeler-dealer, then moving on to make a killing as a financier during the consolidation of the moving picture industry in the mid- to late-1920s, thence to Washington, D.C., as President Roosevelt's first chairman of the Securities and Exchange Commission, next to London as Ambassador to St. James's Court in the lead-up to World War II, and finally as father to politician sons John, Bobby and Teddy. In many ways, JPK's biography is as fascinating, if not more so, than those of his children. Two excellent books are available that trace the arc of JPK's life: Nasaw's The Patriarch and Beauchamp's Joseph P. Kennedy Presents (do yourself a favor and skip Kessler's Sins of the Father, which is a complete hatchet job).

The subject of this blog, however, is much more narrow: it concerns a stock trade that JPK put on in the early 1920s, when he was 33/34 years old. This trade went a great deal towards sealing JPK's immense fortune, upon which the Kennedy Dynasty was founded. The trade has been described in various books regarding the Kennedys over the years, except never 100% accurately. The facts are as follows:

1. Sometime in 1922 JPK learned from Galen Stone, his banker boss at the Hayden Stone brokerage company in Boston, that the Pond Creek Coal Company (of which Stone was then chairman) was negotiating with Henry Ford to sell its operations in Kentucky to a subsidiary of Ford Motor Company called Fordson Coal Company (interestingly, at the time Ford Motor Company was also a coal producer).

2. Around the middle of 1922, JPK, using 90% margin and just $24,000 of his own funds (which amount itself may have been (at least partially) borrowed by JPK from other sources, as he was normally loathe to risk his personal funds when making his investments), purchased 15,000 shares of Pond Creek Coal Company stock at $16/share, for a total value of $240,000.

3. Negotiations between Ford and the Pond Creek Coal Company dragged on through the fall of 1922 and into December, with JPK sweating bullets, since if the deal fell through he likely stood to lose his entire $24,000 investment (note that many published sources that recount the circumstances surrounding the investment completely omit to mention that JPK's principal was at risk for quite a few months; just a 10% drop in the stock price from JPK's basis, or from $16/share to $14.40/share, would have wiped out his margin).

4. Finally in late December 1922, the parties reached agreement on the sale and Pond Creek Coal Company's stock quickly rose, first to $39/share upon the announcement of the deal and shortly thereafter to $45/share, at which price JPK liquidated his entire investment.

5. To the victor goes the spoils: JPK realized proceeds of $675,000 on the sale of his shares [15,000 shares multiplied by $45/share]. After we deduct for (A) the $216,000 margin loan [15K shares X $16 basis X 90% LTV], and (B) 12% interest (admittedly, we are guessing as to the interest rate) on the margin loan for approximately 6 months [or $13,000 total interest], it appears that JPK cleared a total profit of around $446,000 on this $24,000 investment, representing an 18.6-fold return in ~6 months, or a CAGR of ~3700%. (The various published sources we consulted never get the $446,000 amount correct; they either do not deduct for the margin loan and interest, or inexplicably double-count the margin loan, thereby deducting double the proper amount from the gross sale proceeds.)

Pretty nice return. But wait, there's more. At the time, a new Ford Model T cost about $364 (source) and a newly constructed single family house cost in the $1,000 to $3,000 range (source), so we can ballpark the $446,000 profit's purchasing power as being equal to around 100X today's purchasing power, or the equivalent of about $45 million in 2017 dollars. Try making $45 million these days from a single trade in your online brokerage account! JPK did the equivalent in late 1922 (although the days of 90% margin loans are long gone; plus, you might get busted by the SEC for insider trading).

Post-script: The following images are from a 1920s Ford Coal brochure (note that despite the handwritten date of 1920 on the top right of the first image, this brochure was clearly produced after Ford purchased Pond Creek Coal's coal operations):

The caption to the picture below left and the text below right refer to Ford's "Pond Creek" operations:

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