A:

United States Steel Corportation (NYSE:X) was the world's first company to surpass the market capitalization mark of $1 billion dollars. In the early 1900s, John Piermont Morgan wanted to do for steel what he had done in railroads. The only problem was that Andrew Carnegie controlled the biggest and most efficient producer of steel, Carnegie Steel. Morgan worked with Charles Schwab to convince Carnagie to sell his business into the new entity envisioned by Morgan, U.S. Steel. Carnegie, already pondering retirement, agreed to sell to the Morgan-headed trust for an overall price of about $492 million in stocks and bonds of the new company. Carnegie went on to focus on philanthropy while Schwab necame the president of U.S. Steel.

Unfortunately for Schwab, U.S. Steel was an ungainly welding of mediocre businesses onto Carnegie Steel's lean frame. To bring the rest of the company up to snuff, U.S. Steel needed to raise huge amounts of capital. In 1901, Morgan issued $303 million in mortgage bonds, $510 million in preferred stock, and $508 million in common stock – creating a total capitalization of approximately $1.4 billion - on a company with real assets of $682 million. Thus, half of its worth was goodwill, but the public bought into the overvalued securities.

U.S. Steel would never fulfill its potential and, although Schwab's management postponed the reckoning, saw its market share eaten up by hungrier companies, including Schwab's Bethlehem Steel, formed when he left U.S. Steel in frustration. In fact, one of the owners of U.S. Steel's dissapointing shares was Benjamin Graham's widowed mother. Watching the family's wealth shrink with the shares might have motivated the intelligent investor to focus on hard assets and intrinsic value, discounting egregious amounts of goodwill. (Read more about the famous J.P. Morgan in our article, The Kingpin Of Wall Street: J.P. Morgan.)

This question was answered by Andrew Beattie.

RELATED FAQS
  1. What are the most famous monopolies?

    Learn about famous monopolies from Carnegie Steel to Comcast that challenge free-market competition and encourage government ... Read Answer >>
  2. What are the most famous instances of backward integration?

    Learn more about backward integration in the supply chain and see how two famous examples, Carnegie Steel and Apple, used ... Read Answer >>
  3. Why did the U.S. government take control of the steel industry in 1952?

    In early 1950, Senator McCarthy began seeing communists in every shadow, prompting him to accuse the Truman administration ... Read Answer >>
  4. Why would a multinational corporation conduct a vertical foreign direct investment?

    In many cases, multinational corporations conduct horizontal foreign direct investment (FDI) activities in order to expand ... Read Answer >>
  5. Which commodities are the main input materials for the automotive sector?

    Explore the materials used by automakers to create modern cars and trucks. Find out more about the materials market as it ... Read Answer >>
  6. Who are Charles Schwab's (SCHW) main competitors?

    Find out who Charles Schwab's main competitors are and how they stack up. Learn the information you need to make informed ... Read Answer >>
Related Articles
  1. Markets

    How China Impacts the Global Steel Industry

    The Chinese economy is having a significant impact on the performance and profitability of steel and mining stocks.
  2. Markets

    Global Steel Industry Faces “Severe Winter”

    The global steel industry is in deep crisis due to overcapacity, falling prices and rising competition that has threatened the survival of many companies.
  3. Markets

    Steel Cycle Looks Good

    Buying cyclical stocks at the right time can be a great investment strategy, but it requires more than just trying to time a cycle to benefit.
  4. Markets

    U.S. Raises China Steel Import Duty Sixfold (SLX)

    The U.S. said Tuesday it would raise import duties on Chinese cold-rolled steel by 522%.
  5. Markets

    Steel Prices Soaring, Led by China

    Despite a continuous global supply glut, steel prices in China have advanced since the beginning of 2016.
  6. Insights

    J.P. Morgan: Success Story

    Morgan was an obscure, if prosperous, figure until nearly the age of 50. In 1885, he began investing in the railroad industry, where earnings had been gutted by price wars. In 1890 his father ...
  7. Markets

    It Might Not Be The Time To Buy Into Steel and Iron (RS, STLD)

    This past week, commodity traders turned their attention toward stocks in the steel and iron sector, but based on the charts it may be too early to take a position.
  8. Markets

    Commodities Outlook For The Remainder Of 2012: Base Metals

    Steel is iron alloyed with other compounds like carbon. It is the most widely produced metal in the world. This industry is dominated by China. At one time the U.S. was the top producer, but ...
  9. Markets

    Chinese Central Planners to Cut 6 Million Jobs

    China recently announced plans to lay off approximately 1.8 million workers in the coal and steel sector, but the real figure may be as high as 6 million.
  10. Markets

    Steel Stocks Poised For a Drop

    Steel stocks have triggered overbought conditions on the RSI indicator. These readings could signal a move lower in the weeks ahead.
RELATED TERMS
  1. Steel Industry ETF

    A sector exchange-traded fund that invests only in companies ...
  2. Morganization

    Monopolization techniques used by J.P. Morgan in the nineteenth ...
  3. Philanthropy

    Charitable giving to human causes on a large scale. Philanthropy ...
  4. Bellwether

    An event or indicator that shows the possible presence of a trend. ...
  5. Industrial Park

    A portion of a city that is zoned for industrial use (as opposed ...
  6. TIAA-CREF

    A nonprofit organization that provides investment and insurance ...
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center