Clint Murchison Sr.’s Diversification Beyond Texas Oil

Between 1918 and 1948, approximately 12,500 various individuals and business entities purchased and/or leased property in Texas for the purpose of extracting oil and participating in the get-rich-lifestyle that appeared within reach during the famous Gusher Era in Texas.

Of these various oil men, the “Big Four” were H. Roy Cullen, H.L. Hunt, Sid Richardson, and Clint Murchison, Sr. This raises an obvious inquiry: What was so distinguishable about their behavior that they were able to earn the top 0.01% of results among a slew of competitors that had the same idea?

From what I can gather, these men applied at least four principles to their construction of their personal fortunes:

  1. They minimized the carrying costs of launching an oil business in their early days, by frequently refinancing their debts accrued to buy oil fields in East Texas and also using slightly outdated oil equipment that was still sufficient for the task of extraction, but then used outdated equipment in innovative ways such as by making ad hoc modifications to dig deeper into a field;
  2. They understood both sides of the coin with cyclical industries, namely that such businesses can create immense paper wealth over a five-year stretch on the upside that can eclipse nearly any other human behavior;
  3. In time, perhaps Clint Murchison Sr. best of all, they came to understand the importance of owning diversified non-oil assets as well, especially in that they could become better oil investors by having cash coming in from elsewhere to buy oil fields on the cheap when the prices go bust and everyone else is scrambling to avoid insolvency.
  4. They understood the power of capitalized earnings–i.e. Building a profit engine of $100,000 per year could really mean that you just created $1 million in wealth because businesses get sold at some multiple of annual earnings.

When I began to study the life of Clint Murchison Sr., whose name lives on most prominently through his son Clint Murchison Jr. who once owned the Dallas Cowboys football franchise, I was initially struck by this paragraph in his Wikipedia page profile:

In the late 1930s, Murchison began diversifying his investments working with his sons, John Dabney and Clint, Jr., who joined the business after World War II. They acquired life insurance companies, banks, bus lines, railroads, publishing firms, heavy industrial building materials companies and other leisure-themed companies. Holdings included New York Central Railroad, BB gun maker Daisy Manufacturing Company, Lionel Trains, Henry Holt Publishing, Field & Stream magazine, Heddon Rod & Reel, and Alleghany Corporation.

That is exactly the type of behavior that someone with concentrated wealth from a cyclical industry ought to engage in. It is one of the best real-life examples of wealth through diversification that I have ever encountered.

I regard the 20th century Texas oil men as having one of the best character traits that someone can possess which I’ll call “actionable optimism” in that they identified ambitious personal goals and then took it as a premise that they could achieve them if they worked hard enough and did not shrink away from risk (because they implicitly believed that the risk of not accomplishing what they were capable of in life was a greater risk than falling along the way). Broadly speaking, this is a segment of American history worth studying, as many of the old-age Texas wildcatters wore born into nothing, and had every reason to be discouraged with their lot in life, but pressed on and on and on. Few other slices of American entrepreneurial history are as inspiring.

Originally posted 2018-09-15 17:37:42.

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