You’ve probably never heard of Henrietta Howland “Hetty” Green. When she died in 1916, she was worth an estimated $100 million to $200 million (which would be equivalent to $2.25 billion to $4.5 billion today). She was most likely the richest woman in the world at the time, and she earned her fortune in finance.
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When a list of the richest Americans in history was published by American Heritage in 1998, Hetty Green was at No. 36. She was the only woman on the list. And, to me, it’s important to note that she made every penny on her own. In fact, one biographer noted that her only liability was her husband.
Hetty made her fortune on Wall Street and by investing in opportunities all around the country. She developed the principles of value investing that would later be written down by Ben Graham, who would later teach them to Warren Buffett. But while Graham and Buffett are well known, Hetty Green is not.
One reason she has faded into the pages of history is the fact that she didn’t take any steps to preserve her name. When she died, she passed her fortune to her children, and when her daughter died in 1951, the Green fortune was distributed among 64 colleges, churches, hospitals and other charities. Many wealthy people endow a single cause to carry on their name, like the Ford Foundation or Stanford University. Hetty didn’t do that.
Another reason she has faded from the history of Wall Street is because her… let’s say personal eccentricities obscured her accomplishments.
Instead of being remembered as a great investor, when Hetty Green is remembered… it’s as the “Witch of Wall Street.”
The “Witch Of Wall Street”
Part of her legend has to do with her frugality. That she wore the same black dress every day until it wore out. Or how she moved between cheap apartments in New Jersey to avoid income taxes. There’s also the somewhat horrifying fact that Hetty was too frugal to pay for her son’s medical care when he broke his leg… which was eventually amputated.
I’ve heard all those stories, and more, but I am impressed most by her mind.
Hetty invested in the age of robber barons… when railroads were bought and sold by insiders… and great fortunes were made by large corporations that failed to provide safe working conditions. Yet, unlike most of her contemporaries, Hetty was never accused of wrongdoing.
She made her fortune by buying low and selling high, using her mind instead of her muscle or the muscle of underpaid workers.
From all of my research, I believe she was the first to do this. She was truly the Warren Buffett of her day. And like Buffett, she had an amazing ability to explain her ideas concisely.
Ask Hetty, and she’d tell you the key to investing was simple: “There is no great secret in fortune-making … All you do is buy cheap and sell dear, act with thrift and shrewdness and be persistent.”
Also like Buffett, Hetty always had cash ready when the crash came. Buffett made billions helping Goldman Sachs and GE survive the financial crisis in 2008. Hetty saved New York City in the 1907 panic with a $1.1 million loan (about $29 million in today’s dollars).
As she later recalled, “When the crash came, I had the money, and I was one of the very few who really had it. The others had their securities and their values. I had the cash and they had to come to me in droves.”
Unlike Buffett, Hetty never intended to hold onto her investments. As she explained, “I never buy anything just to hold it. There is a price on everything I have. When that price is offered, I sell.”
There is much we can learn from Hetty Green. And the most recent trade I recommended to readers of my premium service, Income Trader, is an investment opportunity I know she would love.
Hetty Green Would Love This Trade
It’s in Magellan Midstream Partners, L.P. (NYSE: MMP).
Magellan Midstream Partners owns the longest refined petroleum products pipeline system in the country, with access to nearly 50% of the nation’s refining capacity and the ability to store more than 100 million barrels of petroleum products such as gasoline, diesel fuel and crude oil.
The reason MMP would be attractive to Hetty Green is because of the income it distributes. The partnership has increased its payout in 64 of the 68 quarters since it began trading in 2001 (holding its distribution steady in 2009) and now carries a current yield of more than 6.2%.
MMP is a master limited partnership (MLP), which is a type of security that trades just like a stock or exchange traded fund (ETF). The difference between these entities and an MLP is the fact that MLPs have a tax advantage that helps increase the income they pay to their investors.
While a corporation is required to pay taxes on their earnings, MLPs don’t pay corporate income taxes because they pass the tax liability on to their investors. IRS rules require partnerships like Magellan to distribute at least 90% of their distributable cash flow (DCF) to unitholders. (DCF is earnings plus depreciation minus the amount of money needed to maintain the operating assets.)
The calculations are complex, but the important point is that investors in MLPs often receive distributions that are greater than the reported earnings.
My Income Trader readers and I won’t be buying the MLP directly (more on that in a moment), so the tax reporting isn’t important. What is important is that MLPs recently sold off and are now positioned for relatively quick gains.
The selloff can be seen in the chart below.
The large down day occurred on March 15 after the Federal Energy Regulatory Commission (FERC) ruled that MLPs will no longer be allowed to recover an income tax allowance that was previously available to interstate natural gas and oil pipeline operators.
The FERC noted that MLPs previously “were able to receive an income tax allowance to compensate for investors’ taxes on the partnership’s income.” But, because MLPs don’t pay income taxes, the allowance wasn’t justified.
This news sent the sector lower even though only some MLPs will be affected by the ruling. Research firm FactSet noted that the selloff created a buying opportunity in the sector.
According to The Wall Street Journal:
“The biggest factor driving future returns is valuation, and the regulatory ruling succeeded in pushing MLPs to a level that has sparked past rallies. As of Friday, the index was trading at an 8% discount to the S&P 500 on the basis of price to projected funds from operations over the following year, according to FactSet.
The only two occasions in the past decade that saw a similar discount, in November 2008 and February 2016, preceded rallies of 50% and 60% respectively in the index over the following six months.”
The downside in MMP should be limited because the company doesn’t expect a material impact from the FERC decision. The company reports that the partnership does not have cost-of-service rates that would be directly impacted by this policy change.
How To Trade MMP
Bottom line: All this says to me that the selloff in MMP is an overreaction. This selloff makes the put-selling strategy we use in Income Trader attractive for a short-term income trade.
The partnership should announce its next distribution in the next few weeks, and I believe that will spark a rally in the stock. However, I am recommending a short-term trade that will have us out of the position by then.
Regular investors could certainly do well by buying MMP, watching the stock rally, and collecting the dividends over the long haul. But if everything goes according to plan with our trade, my Income Trader readers and I will generate 4.5% in instant income from MMP — without having to buy the stock. Compare that to the current 6.2% yield you would earn from owning MMP for a full year, and I think that’s a pretty good deal.
It’s actually easier than most people would think to make trades like this. All it takes is a willingness to learn something new. So if you’d like to learn just exactly how my readers and I are able to do this (and make winning trades over 90% of the time), then you should check out this special report.