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.

  1. How did Enron use off-balance-sheet items to hide huge debts and toxic assets?

    Prior to its infamous accounting scandals and collapse, Enron used off-balance-sheet special purpose vehicles (SPVs) to hide ... Read Full Answer >>
  2. Where did the term 'Nostro' account come from?

    The term "nostro" is Italian in origin. It means "our" or "ours." In accounting and finance, nostro accounts are often differentiated ... Read Full Answer >>
  3. Can the Herfindahl-Hirschman Index be used to determine competitive balance in professional ...

    Although the measurement and analysis of a company's key performance indicators (KPIs) vary by company, it is important to ... Read Full Answer >>
  4. What is operations management theory and how can it help a business?

    Operations management is concerned with controlling the production process and business operations in the most efficient ... Read Full Answer >>
  5. Should I invest in penny stocks or large cap stocks for my retirement portfolio?

    Large-cap stocks are a superior investment option for retirement portfolios compared to penny stocks. Most penny stocks are ... Read Full Answer >>
  6. Is it more beneficial to invest in a blue chip stock or a penny stock?

    Penny and blue-chip are terms used to describe a stock's valuations and statures. Penny stocks are generally the stocks of ... Read Full Answer >>
Related Articles
  1. Insurance

    Warren Buffett: The Road To Riches

    Find out how he went from selling soft drinks to buying up companies and making billions of dollars.
  2. Stock Analysis

    What Led to Lumber Liquidators' Decline?

    Read about how a "60 Minutes" story on laminate flooring sold by Lumber Liquidators led to a massive decline in the share price for the company.
  3. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Russell Top 50 Mega Cap

    Find out about the Guggenheim Russell Top 50 Index ETF, and read about some recommendations regarding the suitability of this investment.
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  5. Mutual Funds & ETFs

    ETF Analysis: First Trust Dorsey Wright Focus 5

    Take a closer look at the First Trust Dorsey Wright Focus 5 ETF, a unique and innovative fund of funds based on momentum and relative strength.
  6. Mutual Funds & ETFs

    ETF Analysis: Schwab US Large-Cap

    Discover how the Schwab U.S. Large-Cap exchange-traded fund is managed, the index it tracks and the investors for which it is most appropriate.
  7. Investing Basics

    Calculating the Margin of Safety

    Buying below the margin of safety minimizes the risk to the investor.
  8. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  9. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Low Volatility

    Find out about the PowerShares S&P 500 Low Volatility ETF, and learn detailed information about this fund that provides exposure to low-volatility stocks.
  10. Markets

    The 5 Biggest Canadian Insurance Companies

    Learn more about the insurance industry as a whole, how it functions in Canada, and the five largest Canada-based insurance companies.
  1. Lean Enterprise

    A production and management philosophy that considers any part ...
  2. S&P 500 Dividend Aristocrats

    Companies that have had an increase in dividends for 25 consecutive ...
  3. Purple Chip Stock

    A term coined by portfolio manager John Schwinghamer to describe ...
  4. Blue-Chip Index

    A stock index that tracks the shares of the top-performing publicly ...
  5. Blue Chip Indicator

    A formal gauge or measure of the performance of a selected group ...
  6. Graham Number

    A figure that measures a stock's fundamental value by taking ...

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!