Last week we took a look at “Texas Oil and the Legend of Spindletop.” Today we’ll dig further into Bryan Burrough’s excellent book, The Big Rich: The Rise and Fall of the Greatest Texas Oil Fortunes, to see what we can learn.
Of all the great Texas oilmen, four stand out: Roy Cullen, Clint Murchison, Sid Richardson and Haroldson Lafayette “H.L.” Hunt Jr. Fittingly, they are known in Texas lore as “The Big Four,” having passed the title amongst themselves of “America’s wealthiest man.”
“Go a Little Deeper”
The first of the Big Four, Hugh Roy Cullen, was known as a “creekologist.” A fifth-grade dropout, Cullen found his oil by studying the land (particularly creek beds and hillsides) for telltale signs of oil.
According to Bryan Burrough, Cullen was an “accidental oil man,” trying his hand at the oil business when earlier aspirations as a cotton broker didn’t pan out. In his mid-30s Cullen began traveling the length and breadth of West Texas, in search of promising acreage on which to lease oil rights. Though the travel schedule was brutal, Cullen made decent money as a middleman – connecting investors, who hoped to make a big score, with optimistic farmers, who hoped oil would be found on their land.
Cullen hit his first gusher (and cemented his reputation as an oilman) in 1920 at the age of 39. After that, Cullen spent a fruitless “three years in hell” drilling dry holes, burning through most of his capital in the process.
Then, in 1924, Cullen had the flash of insight that would make him fantastically rich. “The trouble with this business,” Cullen told his investors, “is that everybody expects to find oil on the surface. If it was up near the top, it wouldn’t be any trick to find it... You got to drill deep for oil.”
His investors were skeptical, but they backed Cullen’s play – and the insight paid off with a new gusher. As Burrough described it,
The second Pierce Junction well created a new mantra for Cullen. Hit the flanks of the old abandoned salt domes, and drill deeper. If he didn’t find oil, drill deeper still. Many of his field hands, a number of whom would work with Cullen for the next thirty years, could imitate his laconic instructions in their sleep: “Boys, let’s go a little deeper.” His longtime operations manager, Lynn Meador, once said, “When they start to lower Mr. Cullen into a grave, I bet he’ll sit up and say, ‘Boys, dig her a couple of feet deeper.’”
And so, with guts, tenacity, and the insight to “go a little a deeper,” a fifth-grade dropout managed to become (for his time) one of the wealthiest men in the United States.
After a period of frustration in his early years, Cullen saw that “everybody expects to find oil on the surface.” Today’s equivalent might be looking in the same places as everyone else... doing the same shallow analysis as everyone else... and coming to the same herd-driven conclusions as everyone else.
For those willing to “go a little deeper” in their studies, their research, and their personal growth commitment as investors and traders, an undiscovered gusher could be the result.
“Financing by Finaglin’”
Clint Murchison, known as the “brainiest” of Texas oilmen, was described as being a homely yet fiercely intelligent child:
[Murchison was] saddled with the body of a snowman – big head, beanbag nose, no neck to speak of – and a face like a dish of melted ice cream. But what Clinton Williams Murchison lacked in physical appeal he made up for with a mind that whirred like a Swiss timepiece.
Murchison was aided by the cachet and financial connections that came with the family name, as T.F. Murchison (Clint’s grandfather) had founded the general store and the town’s first bank. As a teenager, Murchison made money trading livestock. Later, at age 20, he was thrown out of divinity school for organizing craps games.
Murchison got his start trading oil leases with a friend, fellow “Big Four” member Sid Richardson, in a red-hot oil boomtown called Buckburnett in the summer of 1919. As a natural math whiz, Clint could figure out royalty payments in his head – not unlike Warren Buffett, who claims to shun calculators to this day.
One might, in fact, say the Murchison oil fortune was built on an early form of financial engineering. As Burrough tells it,
Chronically short of cash – like most wildcatters – [Murchison] would trade a share in one lease for a rig to drill another; once he got the rig, he would trade shares for production in another rig, and so on. He called it “financing by finaglin’”; other oilmen watched him in awe.
Later in life, “Murk” (as his friends called him) distinguished himself both in pioneering the “Big Rich” lifestyle – private planes, sprawling ranch estates, lavish entertainment for famous guests – and in showing his fellow oilmen how to diversify. “Money is like manure,” Murk reportedly once said. “If you spread it around it does a lot of good. But if you pile it up in one place it stinks like hell.”
Clint Murchison was born with a banking family background and a natural head for numbers – a profile as different from fifth-grade dropout Roy Cullen’s as one might imagine. Murchison ultimately found success by focusing on the parts of the business he knew best, and applying his “finaglin’” skills where they offered the greatest edge.
What can we learn from Murchison today? Perhaps that leverage, used at the right time and in the right amounts, can be instrumental in building a fortune.
In one sense, what Murchison did in his early years was highly complicated (trading shares in one lease for production in another and so on). In another sense it was straightforward, not unlike stacking hay bales. First you lay down three bales, then two on the second row, then one on the third row... then you put a fourth bale in front and work your way up... eventually a fifth, a sixth, and a seventh... and then you just keep stacking higher as time goes by. Through the proper combination of patience and aggression – and with the help of prudent leverage – a trading and investing fortune can be built the same way.
In the final piece in this series, we’ll profile the other two members of the Big Four (and draw some final lessons from Burrough's book).
Warm Regards,
JL
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