Colt, US Steel, and Jeremy Siegel

Financial Almanac
This is the Financial Almanac for Friday, February 25, 2011.

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On this day in 1836, Samuel Colt received the patent for his revolver, which was an adaptation of a revolving flintlock model that had been popular in England. Colt insisted on using interchangeable parts in an assembly line to reduce costs and achieve consistency. In a letter to his father, he described the process: “The first workman would receive two or three of the most important parts . . . and would affix these and pass them on to the next who add a part and pass the growing article on to another who would do the same, and so on until the complete arm is put together.” His young company, then called Colt’s Patent Firearms Manufacturing Company, went on to create the famous “Peacemaker” single action revolver in 1873, sometimes called the Colt 45.

In 1986 Colt lost its government contract to make M16 rifles. It struggled and finally declared bankruptcy in 1992. It continued operations, however, and emerged from bankruptcy under new ownership in 1994. It developed new products including the Python Elite Revolver, considered by many to be the finest revolver ever made. “GUNS Magazine” called it, “The Rolls-Royce of sixguns.” Colt also began winning military contracts again including M4 carbines, and M16s for the first time in 10 years. By 1999, Colt enjoyed a 59,000-unit backlog of military orders. That same year, retired Marine Corps Lt. General William M. Keys took Colt’s helm as president and CEO, and shepherded it through a thicket of lawsuits against handgun makers. He reoriented the firm toward military and law enforcement customers, where the risk of legal backlash was minimal. His efforts resulted in the creation of an entirely different company called Colt Defense, and the Colt M4 carbine becoming the standard-issue combat rifle of the US Army and Marine Corps. Making handguns and target rifles, Colt’s Manufacturing Company operates today in Hartford, Connecticut, just a few miles from Sam Colt’s original armory.

On this day in 1901, J.P. Morgan and Elbert Gary incorporated U.S. Steel, a combination of Carnegie Steel, Federal Steel, and National Steel into an entity capitalized at $1.4B, at that time the world’s first billion-dollar company. It controlled two thirds of steel production. During World War II, it employed more than 340,000 workers and at its peak in 1953 produced more than 35M tons of steel.

The logo used by the Pittsburgh Steelers football team was developed by U.S. Steel as the Steelmark logo with three starlike shapes inside a circle. The original message of the logo was: Steel lightens your work, brightens your leisure, and widens your world. It was used in print advertising and steel product labels. In the 1960s, the company gave the logo to the American Iron and Steel Institute to represent the entire industry. The U.S. Steel Tower is the tallest in downtown Pittsburgh and the company is still America’s largest steelmaker. Its production, however, is only slightly higher than it was in 1902. Its stock, symbol X, closed yesterday at $57, up from $40 at the end of October.

It was four years ago this week that the Shanghai Composite index crashed 9 percent in one day on rumors that the Chinese government was going to raise interest rates to stop inflation and restrict speculating with borrowed money. The S&P 500 reacted with a 3.5-percent drop.

Two years ago today, University of Pennsylvania Wharton School professor Jeremy Siegel wrote in The Wall Street Journal that Standard & Poor’s was calculating aggregate company earnings incorrectly in a way that made the S&P 500 look more expensive than it really was at that time, a notion that shocked investors into thinking that stocks had even farther to fall than they’d already fallen in the severe bear market. He concluded, “When computed accurately, P/E ratios show that this market is much cheaper than is currently being reported by the S&P. Those who venture into today’s stock market are indeed buying good values.” Since his article, the S&P 500 has gained 71 percent.

From Sano, Japan, I’m Jason Kelly saying observe the world, find what makes it better, and profit from your discoveries.

Have a great day!
Jason Kelly
The Kelly Letter

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2 Comments

  1. Posted February 26, 2011 at 9:07 pm | Permalink

    Jason, Thanks for the info on Sam Colt and his manufactory. I live in Connecticut, which used to be the HQ for the entire firearms industry in the USA. We had Colts, Marlin, Winchester, Ruger, High Standard, and many more. Not much remaining now. Even the most successful of all, Ruger, just keeps a mailing address here, and has moved its manufacturing to New Hampshire and Arizona.

    The history of the various firearms companies is not much different than the history of car manufaturers in Detroit, or shoe manufacturers in New England. It seems all businesses have a life cycle, nothing lasts forever, and investors may want to understand where any company is in its life cycle before investing. I believe politicians often have an unintended effect of driving businesses to their knees with well intended taxes and legislation that does exactly what it was not designed to do. But then, what can one expect from a politician?

    • Posted February 27, 2011 at 6:00 pm | Permalink

      You’re welcome, Kent. I agree about company life cycles and also share your contempt for politicians. The few good ones that squeak through rarely get anything worthwhile accomplished because they spend all their energy fighting the bad ones held hostage by special interests.

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