#253 Henry Goldman Goldman Sachs

Summary Notes


In the book "When Money Was in Fashion," June Breton Fisher chronicles the life of her grandfather Henry Goldman and the early days of Goldman Sachs, a tale interwoven with ambition, innovation, and family drama. Henry, who overcame astigmatism and initial underestimation, revolutionized Goldman Sachs by pioneering IPOs for burgeoning firms like United Cigar and Studebaker, despite familial tensions and his controversial support for Germany during WWI. His departure from Goldman Sachs marked a bitter end to a remarkable career, leaving behind a legacy of success and a cautionary tale of work-life balance. Fisher's narrative, bolstered by additional insights from Malcolm Gladwell's essay "The Uses of Adversity" and the podcast "Goldman Sachs: Fortune Favors the Old," serves as a testament to Henry's ingenuity and the complex dynamics that shape financial empires.

Summary Notes

Early Career of Sidney Weinberg and Mentorship from Henry Goldman

  • Sidney Weinberg started at Goldman Sachs as a janitor's assistant and worked his way up to partner.
  • Weinberg was an 8th-grade dropout who initially did menial tasks but was recognized for his potential by Henry Goldman.
  • Henry acted as Weinberg's mentor, advising him on career moves and introducing him to valuable business contacts.
  • Weinberg's success at Goldman Sachs was attributed to his listening skills and adaptability, traits he shared with Henry Goldman.

"Among the many letters of sympathy received by the family after Henry's death was one from Sidney Weinberg, who had been elevated to the position of partner in Goldman Sachs in 127 and assumed the role of senior partner five years later."

This quote provides background on Sidney Weinberg's career trajectory at Goldman Sachs and his relationship with Henry Goldman, highlighting the significance of mentorship in his rise within the firm.

Henry Goldman's Impact and Legacy

  • Henry Goldman was instrumental in the success of Goldman Sachs and was known for his ability to spot human potential.
  • Even after being forced out of the Goldman Sachs partnership, Henry continued to support and mentor Sidney Weinberg.
  • Henry's actions were driven by kindness and a desire to help others succeed, without direct financial benefit for himself.

"Henry had just died to prove a point that he was just doing an act of kindness. That happened, and he was helping Sidney Weinberg in the 1920s."

The quote emphasizes Henry Goldman's character, showing that his support for Sidney Weinberg was an act of kindness rather than for personal gain.

Historical Context and Importance of Preserving Firm's Origins

  • The book "When Money Was in Fashion" by June Breton Fisher aims to document the history of Goldman Sachs and its founders.
  • Walter Sachs expressed concern that younger executives were unaware of the firm's origins and its founders.

"Men can learn from the past. And I've been shocked how little some of the younger executives in the present firm know about its origins."

Walter Sachs's quote highlights the importance of understanding and preserving the history of an institution, as it can provide valuable lessons for the future.

The Founding of Goldman Sachs

  • Marcus Goldman, Henry's father, was the founder of Goldman Sachs.
  • Marcus's life before Goldman Sachs included various entrepreneurial ventures and a recognition of opportunities for business.
  • The partnership that formed Goldman Sachs was a result of a deep friendship and family ties between Marcus Goldman and the Sachs family.

"It was there that Mark made the acquaintance of Joseph Sachs, the 19-year-old son of a poor saddle maker."

This quote introduces the friendship between Marcus Goldman and Joseph Sachs, which played a crucial role in the eventual formation of the Goldman Sachs partnership.

Marcus Goldman's Entrepreneurial Journey

  • Marcus Goldman's path to founding Goldman Sachs was marked by adaptability, opportunity-seeking, and hard work.
  • Marcus was inspired by stories of success like that of Levi Strauss and saw potential in the influx of immigrants to America.
  • The early operations of Marcus's banking business involved buying and selling promissory notes, which later became known as commercial paper.

"Marcus hung out a shingle, advertising himself as M. Goldman Banker."

The quote describes the humble beginnings of Marcus Goldman's banking business, which would evolve into the prestigious firm Goldman Sachs.

The Underestimation of Henry Goldman and His Determination

  • Henry Goldman was initially underestimated due to his difficulty reading, which was later identified as astigmatism.
  • Despite his father's doubts, Henry was determined to prove his capabilities, using his listening skills as a strength.
  • Henry's ambition was fueled by the desire to overcome the low expectations others had of him.

"His own father, Marcus, didn't think that Henry was capable enough. And so when it was time to pick a partner, he chose his son in law."

This quote reveals the underestimation of Henry Goldman by his own father and the motivation it provided for Henry to succeed.

Marcus Goldman's Adaptability and Relocation

  • Marcus Goldman's adaptability is evident in his willingness to relocate to New York to pursue greater opportunities.
  • The lack of barriers to entry in the banking industry at the time facilitated Marcus's transition into banking.
  • Marcus's work ethic and ability to capitalize on opportunities were key factors in his success.

"Exhibiting once more an extraordinary ability to reinvent himself and adapt to a new environment."

The quote underscores Marcus Goldman's ability to adapt to new circumstances and seize opportunities, a trait that was foundational to the success of Goldman Sachs.

Henry's Educational Journey and Challenges

  • Henry was not intellectually deficient; he simply needed to discover his optimal learning style.
  • Henry excelled as an attentive listener, which helped him succeed academically.
  • Despite being admitted to Harvard, Henry had to drop out due to poor eyesight.
  • Henry's departure from academia was seen as a preclusion from a successful career in business by his family.

"Henry was an attentive listener who committed everything he heard in school and much that he heard outside of the classroom to memory. He does so well in school, he gets admitted to Harvard."

This quote highlights Henry's exceptional listening skills and academic success, leading to his admission to Harvard.

"He was granted admitted to Harvard, but his eyesight had become so poor that he no longer felt capable of keeping up with his studies."

The quote explains the unfortunate reason behind Henry's decision to leave Harvard, which was due to deteriorating eyesight.

Family Dynamics and Business Beginnings

  • Marcus, Henry's father, was disappointed in Henry's perceived limitations.
  • The author transitions to discussing the end of Marcus's career and the beginning of Henry's.
  • Henry's response to his father's low expectations was strategic and clever.

"Marcus, too straightforward to disassemble his disappointment, wondered out loud what kind of career could be cobbled together for this son of his?"

This quote reveals Marcus's concern for Henry's future given his physical ailment and perceived limitations.

The Formation of Goldman Sachs

  • Marcus expressed gratitude for his life at his 60th birthday, where he announced the beginning of Goldman Sachs.
  • Henry and his brother-in-law Sam were to become partners, despite their mutual dislike.
  • The Goldman and Sachs families eventually stopped speaking for nearly a century due to animosity.

"After the toast at the birthday have been offered and the candles on the cake extinguished, Marcus asked for a moment of silence."

Marcus's request for a moment of silence at his birthday celebration is indicative of his reflective and grateful nature.

"Sam and Henry are going to be partners and they hate each other."

This quote foreshadows the tumultuous partnership between Henry and Sam, which would have lasting repercussions for the Goldman Sachs firm.

Henry's Professional Development

  • Henry became a traveling salesman, which allowed him to learn about sales, people, and the importance of listening.
  • His travels by railroad across the country provided a broad perspective on business outside of New York.
  • Henry's observations and introspection during his travels were formative for his business acumen.

"He became a traveling salesman of textiles."

This quote summarizes Henry's early career move, which played a significant role in his development as a businessman.

"The experience provided an education."

Henry's time as a traveling salesman is described as educational, emphasizing how it contributed to his later success.

Insights into Henry Goldman's Personality

  • Henry was somewhat of a loner and focused on important matters.
  • He was averse to publicity and did not engage in small talk.
  • Henry advised his sons to define their own measures of success and failure.

"Though he was somewhat of a loner, comfortable with his own company."

The quote portrays Henry as an independent individual who was comfortable with solitude.

"Ultimately we have to set our own criteria for what constitutes failure and what constitutes success."

This quote captures Henry's philosophy on personal success and failure, highlighting his individualistic mindset.

Henry's Role in Goldman Sachs

  • Henry joined Goldman Sachs as a junior partner and worked under his father and Sam Sachs.
  • The firm had a unique structure where partners' assets were tied up, providing capital and savings.
  • Henry's living situation was influenced by the financial structure of the firm.

"In 1885 Henry was finally invited into family but only as a junior partner."

The quote indicates Henry's initial subordinate position within Goldman Sachs, despite being part of the family.

Familial Conflict and Legacy

  • The Goldman and Sachs families were intermarried and initially close-knit.
  • Following Marcus's death, a feud erupted, leading to a century-long silence between the families.
  • Henry's final resting place symbolically turned its back on the Sachs family.

"Who could have guessed that this close knit intermarried family, who is also doing business together, would soon be enmeshed in a feud drenched in such animosity that the members and their children would not exchange a word for almost a hundred years?"

This quote reflects on the unexpected and deep-seated conflict that arose within the intertwined families of Goldman and Sachs.

Henry's Rise to Leadership

  • Henry was determined to prove doubters wrong and achieve a leadership role.
  • His expertise in trading railroad bonds significantly increased the firm's balance sheet.
  • Henry's ambition was fueled by the desire to succeed despite expectations of his failure.

"After years of being made aware that he was expected to fail, he was determined to achieve a role of leadership and dominance and prove all the predictions wrong."

Henry's determination to overcome low expectations and achieve success is highlighted in this quote.

Partnership Dynamics and Business Strategy

  • Sam and Henry had conflicting personalities and business visions.
  • Their partnership was strained, but their combined strengths could have led to greater success had they reconciled.
  • Henry was interested in investing in the burgeoning railroad industry, while Sam was more conservative.

"The new partners were polar opposites."

This quote succinctly describes the stark differences between Sam and Henry, which affected their partnership and business decisions.

International Expansion and the Kleinworth Collaboration

  • Sam expanded Goldman's currency exchange business in Europe, leading to a lucrative partnership with Kleinworth and Sons.
  • The Rothschilds played a role in brokering the deal between Goldman Sachs and Kleinworth.
  • The collaboration was seen as beneficial for both parties, given the economic conditions of the time.

"A collaboration was brokered by the Rothschilds wealthy agent in New York who vouched that Goldman Sachs 'is one of the firms about whom nobody can say anything against.'"

The quote highlights the prestige and reputation of Goldman Sachs, as endorsed by the influential Rothschilds during the collaboration with Kleinworth.

Comparisons with the Rothschild Banking Empire

  • The author draws parallels between the Rothschild banking empire's growth and the development of Goldman Sachs.
  • The narrative suggests that Henry played a role similar to Nathan Rothschild in expanding and elevating the family business.

"If you think about Mayor Rothschild playing the role of Marcus Goldman in this story and then Nathan Rothschild playing the role of Henry Goldman."

This comparison places Henry in the context of another influential banking family's history, illustrating the generational impact on the business's success.

Goldman Sachs and Kleinworths in Foreign Exchange and Lending

  • Goldman Sachs established a foreign exchange department to augment bond arbitrage and commercial paper businesses.
  • Kleinworths introduced letters of credit for companies, marking a profitable service.
  • Both companies excelled in lending to developing businesses, which was highly lucrative.

"Goldman Sachs set up a foreign exchange department to increase their bond arbitrage and commercial paper businesses. And the Kleinworths would provide letters of credit for companies, which was a new and very profitable addition to their services."

The quote highlights the strategic business expansions of Goldman Sachs and Kleinworths, emphasizing their ventures into foreign exchange and credit services as a means to enhance profitability.

"It was the field of lending money to developing businesses that both companies really made a killing."

This quote underscores the significant profits both Goldman Sachs and Kleinworths made by focusing on lending to growing businesses, suggesting this was a key driver of their success.

Family Dynamics and Power Struggles at Goldman Sachs

  • The Saxes family expanded faster than the Goldmans, leading to a power imbalance.
  • Internal family hiring decisions caused tensions, especially when Henry's relatives were elevated to equal positions.
  • Marcus's death led to the dissolution of familial pretenses and heightened conflict.

"Henry finds himself in a pickle, because the saxes, the actual family members that have the last name saxes, are actually expanding at a faster rate than the Goldmans in the business."

The quote reflects the internal competition within the company, with the Saxes family gaining more influence than the Goldmans, causing concern for Henry.

"A new bone of contention arose between the brothers in law when Sam hired his brother Harry and then his son Paul and elevated them to positions equal to Henry's."

This quote points to specific instances that exacerbated the power struggle within the family business, as relatives of Sam were given positions that rivaled Henry's status.

Henry's Vision and the Railroad Bond Market

  • Henry advocated for underwriting railroad bonds as a major opportunity.
  • Post-Civil War railroad construction boomed, drawing interest from various financial players.
  • Henry faced competition from established families and companies in the railroad bond market.

"Henry expressed to his partners the conviction that underwriting railroad bonds was the road to the bank, and he was determined to follow it."

Henry's belief in the potential of railroad bonds is emphasized here, showing his determination to pursue this avenue despite the competition.

"The boom in railroad construction after the civil war had transformed the country from an agrarian society to an industrial economy and produced tremendous money on Wall street."

The transformative impact of railroad construction on the U.S. economy and its attractiveness to investors is highlighted in this quote.

The Philosophy of "The Good Ones Know More"

  • Jacob Schiff exemplified the principle that knowledge is a differentiator in business.
  • David Ogilvy and Bill Gurley emphasized the importance of being well-informed.
  • Ambition and the pursuit of knowledge are seen as keys to surpassing one's superiors.

"The good ones know more. And the idea behind that maxim I see over and over and over again in the history of entrepreneurship."

This quote introduces the theme of knowledge being a critical factor in the success of entrepreneurs, as seen in the case of Jacob Schiff.

"First you must be ambitious. Set yourself up to becoming the best informed man in the agency on the account in which you are signed."

David Ogilvy's advice on ambition and knowledge acquisition is quoted here, presenting a roadmap for professional advancement through diligent learning and research.

Henry and Philip Lehman's Partnership

  • Henry and Philip Lehman, both from banking families, discussed the potential in family-owned businesses.
  • They agreed to a partnership between Goldman Sachs and Lehman Brothers to finance these businesses.
  • Their first underwriting was for United Cigar company, seeking expansion capital.

"Goldman Sachs would come up with the clients and Lehman the money with the two sharing profits 50 50."

This quote describes the symbiotic partnership between Goldman Sachs and Lehman Brothers, dividing responsibilities and sharing profits equally.

"Their first underwriting was the United Cigar company, which had previously been opened by a pair of brothers."

The quote details the first venture of the Goldman-Lehman partnership, highlighting the success and growth of the United Cigar company that led them to seek public financing.

Financial Panic of 1907

  • The panic was fueled by a surge in small investors and a shift from bonds to stocks.
  • The Nickenbacher Trust Company's speculative activities with depositors' funds led to its downfall.
  • The panic spread rapidly, leading to a liquidity crisis and tragic outcomes like suicide.

"In 1907, a panic occurred. In the previous ten years, there had been a dramatic increase in the number of small investors in the market and a shift in interest from bonds to stocks."

This quote sets the stage for the financial panic of 1907, indicating a change in investor behavior that contributed to the crisis.

"Knickerbocker's funds were completely wiped out in 48 hours. Barney shot himself."

The catastrophic impact of the panic on the Nickenbacher Trust Company and its president's suicide are detailed in this quote, illustrating the severity of the crisis.

Department Store Investment Opportunities

  • Henry recognized the potential in consolidating retailers under one brand.
  • He saw this as a modern marketing strategy that would benefit both consumers and investors.
  • The strategy led to the successful public offerings of several department stores.

"Henry immediately saw the huge potential of gathering a number of retailers under one name, pooling their purchasing power and implementing a cooperative marketing push across the country."

Henry's vision for revolutionizing retail through consolidation and cooperative marketing is highlighted in this quote.

"Soon the names of famous department stores owned and operated by this family that Henry's helping were strung out like Christmas lights across the country."

The success of Henry's strategy is evident in this quote, which metaphorically describes the widespread presence of department stores that went public with his help.

Market Opportunity through Innovation

  • The concept of finding market opportunities by innovating within existing markets.
  • Woolworths revolutionized retail by buying goods directly from manufacturers and selling them at fixed discounted prices.
  • They displayed goods for customer self-service, eliminating the need for clerks, which was cost and time effective.
  • Woolworths expanded into a large chain and became publicly traded in 1912, synonymous with "five and tens" or "five and dimes."

"So he says, listen, I'll buy the goods directly from the manufacturers. I'll sell them to the public at fixed discounted prices. I'll undercut the offerings of my competition."

This quote highlights the innovative retail strategy of Woolworths, which disrupted the market by cutting out the middleman and offering lower prices.

"He displayed everything so that customers could make a selection for themselves, eliminating the need for a clerk to fetch and carry stock from behind the counter."

The quote emphasizes the self-service aspect of Woolworths' approach, which was a novel concept at the time and contributed to the store's efficiency.

"His operation was cost and time effective."

A concise statement summarizing the benefits of Woolworths' business model.

"Woolworths became a synonym for five and tens, and they were recognized as one of the hottest commercial phenomenon of the 20th century."

This quote encapsulates the impact and success of Woolworths, highlighting its significance in the retail industry.

The Rise of Automobile Industry and Studabaker

  • Studabaker became the first automobile manufacturer to go public with the help of Goldman Sachs.
  • The company was founded by brothers who initially made wheelbarrows for miners during the gold rush and later invested in wagon manufacturing.
  • Studabaker supplied wagons to the U.S. Army during the Civil War and transitioned from horse-drawn to electric and then gasoline-powered vehicles.
  • The company's success was based on seizing the opportunity in the gold rush by providing essential equipment, akin to selling pickaxes.

"Goldman Sachs issued stock in Studabaker, which is the first automobile manufacturer to go public."

This quote marks the significant event of Studabaker going public, a milestone in the automobile industry's history.

"They were extremely successful and became one of the largest wagon manufacturers in the world, supplying the United States army throughout the Civil War."

The quote highlights Studabaker's success and its pivotal role in American history.

"They eventually switched from horse drawn to electric powered vehicles, and then just two years later, they introduced gasoline powered cars."

This quote outlines the evolution of Studabaker's product line, showcasing their adaptability and innovation.

Investment Opportunities and Market Neglect

  • Goldman and Lehman seized market segments ignored by established financial houses, which were considered not prestigious enough.
  • The idea that opportunities can be found where competitors are not paying attention is crucial in entrepreneurship.
  • William Randolph Hearst built a media empire by distributing newspapers via railroads, a method not used by competitors.

"It was an opportunity hiding in plain sight. It was a segment of the market that was ignored by the established financial houses because they didn't think it was prestigious enough."

The quote reflects the concept that significant opportunities can be overlooked by established players due to misconceptions about market prestige.

"Why don't, instead of just trying to outcompete and just do the same thing everybody else is doing, I'll just put my newspapers on a new technology of the day, which is railroads, and I'll send them out to all these cities that are surrounding the city of San Francisco."

This quote illustrates Hearst's innovative approach to distribution that allowed him to capture a new market.

Marketing and Product Development Convergence

  • Clever manufacturers recognized the merging of product development and marketing.
  • The Brown Shoe Corporation used entertainment as a marketing tool, employing actors to perform and sell shoes.
  • This innovative marketing strategy turned Brown Shoe Corporation into the largest manufacturer of children's shoes in the world.

"Clever manufacturers recognized that product development and marketing were becoming almost indistinguishable."

The quote implies that successful companies were those that understood the importance of integrating product development with marketing strategies.

"The Brown Shoe Corporation pioneered the use of entertainment as a marketing tool and turned itself into a national brand, mixing showbiz into their sales pitch."

This quote demonstrates how Brown Shoe Corporation differentiated itself by combining entertainment with commerce to market their products.

Personal Motto and Investment Philosophy

  • Henry Goldman's personal motto was "money is always in fashion."
  • He believed in the continuous pursuit of financial opportunities, regardless of the market conditions.
  • His investment philosophy was based on the idea that there is always potential for making money.

"But we can always try, he said, just keep in mind money is always in fashion."

The quote reflects Henry Goldman's optimistic and persistent attitude towards financial opportunities.

World War I Impact on Business and Personal Relationships

  • Henry Goldman's support for Germany during World War I caused tension with partners and family.
  • Goldman Sachs had bylaws requiring unanimous partner agreement for investments, which led to conflict.
  • Henry's public support for Germany led to Goldman Sachs facing backlash and being blacklisted in England.
  • His departure from the firm was marked by strained relationships and never reconciling with his family.

"Henry's partners and his sisters were embarrassed by his views and urged him to cool down his rhetoric."

This quote indicates the personal and professional conflict arising from Henry's political stance during the war.

"Henry realized at last that he was placing the firm's future in jeopardy."

The quote captures the moment of realization that Henry's personal beliefs were endangering the firm's existence.

Legacy and Reflections on Life

  • Henry Goldman reflected on his life, expressing regret over his relationship with his children.
  • He maintained a low-key lifestyle even as he continued to invest and travel after retirement.
  • His death was quiet, and he left a legacy of innovation and success in the financial world.
  • The narrative concludes with a reflection on the transience of life and the importance of living fully.

"Henry shared that his greatest regret was that he had never developed a greater rapport with his children."

This quote reveals Henry's personal regret, emphasizing the importance of family relationships over professional success.

"A fabled life had ended for the Renaissance man whose ethics and morals never ran second to ambition and drive."

The quote summarizes Henry's life, highlighting his ethical approach and his balanced pursuit of success.

Supporting the Podcast

  • The podcast host encourages supporting the podcast by purchasing the book through a provided link or by gifting a subscription.
  • By doing so, listeners contribute to the continuation of the podcast.

"The very best way to support the podcast is to give a gift subscription to a family member, a friend, or a colleague."

The quote is a call to action for listeners to support the podcast by sharing it with others.

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