So, over Christmas I’ve been reading David Lough’s No More Champagne: Churchill and his Money. I can’t really recommend this book enough. Financial biography or rather biography by finance is a genre, I think, with quite a bit of potential. Money talks, but it rarely lies.
Lough points out that Churchill’s switchback from the Tories, to the Liberals, and back to the Tories can be situated in terms of his personal finances. Having started out in the party of the landed interest, he switched to the party of the entrepreneur and the professional when he started to earn serious money with his writing. Having finally acquired land, he switched back to the Tories.
I would add that the Tories of 1925 weren’t the same party they were in 1905. British politics was reorganising itself around the central drama of labour and capital, and the Tories were emerging as a general-purpose business lobby. However, they didn’t quite shake off the dukes, and hence you get Churchill’s 1925 budget with its curious combination of a tax policy designed to favour entrepreneurs and hit rentiers, and a return to the gold standard designed to do the opposite. WSC was either a squire trying to be a self-made man, or the other way around, and it’s no surprise his policy ended up being incoherent.
From an even more olympian perspective, No More Champagne is what the breakdown of Piketty’s r>g looks like at the micro-level. Patrimonal capitalism requires both that r>g, so that the standard of living of the rich keeps ahead of the rest, and that r is high enough in real terms that the rich as a group can save enough of their income to replace capital drawn down for unexpected expenses (woodworm in the east wing) and to constitute the capital of any increase in the rich population.
If these constraints are not satisfied, we might expect to see various solutions. One would be to import more capital, classically by marrying an American heiress. Another would be to restrain g by adopting a deflationary macroeconomic policy, for example, by going back on gold. Yet another would be to reach for yield, taking more risks in a bid to increase r, for example by plunging on risky start-up investments. And a final option would be to reduce spending and lead a less extravagant lifestyle, for instance, by opening the big house to the public.
The Churchills, famously, are a case of option a) going badly wrong, as the heiress turned out not to be that well-off. Churchill’s 1925 budget could be read as option b) in action, although he was usually so skint that this was a bit of a remote concept. He resisted d) like he resisted the Germans – this was a guy who decided to drink champagne only five times a week in order to save money. What about c), then?
John Wasik’s Keynes as an Investor points out that JMK was a modern investment manager before his time, using value investing, the equity premium, and concentrated portfolios before these strategies were officially invented. A hypothetical “Churchill as an Investor” paper would basically be excellent advice on how not to manage money.
Churchill’s basic financial problem was that he couldn’t buy. He was actually very sharp on the sell-side of the table, ruthlessly negotiating with publishers, editors, and film-makers to squeeze the last penny out of his copyrights. He rarely sold a piece once, but rather recycled it into a book and the book into a serial and then sold the film rights. He only once turned down an advance, and learned the lesson. He always started prices high. He offered one of his numerous literary agents – he kept several and made them compete – a 15% commission but only on the sum over and above what he was already getting.
On the buy side, though, he bought too much stuff, and paid too much for it.
If it was a share, he would run after tips on high-risk small cap companies – Canadian oil & gas was a favourite, still a notoriously wild market even today. He traded far too often. He made hamfisted attempts to time the market. He levered up and borrowed hugely on margin. He sometimes day-traded the NYSE. He tended to chase his losses, and to bail out of his winners too early. He was a terrible markets groupie who liked to hang out with brokers and convinced himself he knew what he was doing. Having lost a fortune in the crash of 1929, he repeatedly went bargain hunting in US retail and utilities chains, the big speculative stocks of the day, and lost even more until the senior partner of his brokers, Vickers, Da Costa, personally asked him to stop trading. Even that only stopped him for three months.
Having (like Keynes) called the US recovery, he bungled the execution (unlike Keynes), binning the turkey before it really got started and then jumping back in, just in time for the Fed to take the punch away. This got his Vickers, Da Costa account suspended a second time.
In short, he did every damn thing you are advised against, and lost hilarious amounts of money. After he got rich, he had another crack at those Canadian resources small caps in the 1950s and whadda ya know? He lost another boatload of cash. He didn’t even manage to use his political connections to rip people off by insider-trading – when he was minister of munitions in 1917, you’d think he’d have had better things to do than load up on three smokeless coal startups, all of which went down the plughole quick smart.
In fact, he tried all the ways rich men find to lose money, except yachting and mistresses. He fell in love with houses, and fell out with architects. He got a private pilot’s licence, one of the very first. He spent far too much on clothes, sports, cigars, and booze. He went in for rich guy farming, which gave him another classic, a losing business to feed. It was probably fortunate for us all that he tended to get himself invited aboard other people’s yachts rather than buying one himself, as tht would certainly have led to bankruptcy and disgrace.
And then there was the casino gambling. He regularly lost six-figure sums, and was obsessed enough that on one holiday in the south of France, he stopped the taxi on the way to the station going home to dive into the casino for a final roll of the dice. No shortage of cash ever stopped him, and neither did his wife’s horror at the habit.
Ironically, the only Churchillian investments that ever washed their faces were racehorses. When I saw this coming up the page I felt a surge of horror-fascination. How much would he lose, and in what baroque and terrible way? But actually he managed to make a substantial profit. Perhaps, as a polo-playing and fox-hunting cavalry officer, he actually knew something about horses, which he certainly didn’t about Canadian oil exploration.
Other than horses, the only other time he bought something without losing his shirt was in March, 1941, when he bought back his copyrights from his bankrupt publisher, who in the meantime had sold them to another publisher without actually owning them. That paid off enormously in the long run, and in fact continues to pay off for his heirs out to 2037. But he only went through with it because Brendan Bracken, whose role as unofficial business manager expanded as Churchill’s income did, insisted.
Money also illuminates his inner life. The Black Dog struck in 1937-8, when he was savaged by margin calls in the hundreds of thousands of pounds on his appallingly ill-thought-out share portfolio, pursued by the Inland Revenue, enormously overdrawn at his bank, writing 2000 words a day or more for fear that his publisher would reclaim the long-spent advance on Marlborough: His Life and Times. Of course he was depressed.
That he made it to 1940 without going bankrupt reflects great credit on his financial advisers, notably William Bernau, his bank manager and insurance broker at Cox’s and then Lloyds for two decades until the stress finally caught up with him, Cecil Vickers and WSC’s brother Jack Churchill at Vickers & Da Costa, his Lloyds tax adviser Geoff Mason, and his lawyer Anthony Moir.
Providing Churchill with financial services must have been exhausting, risky, but eventually rewarding – he must have paid enormous amounts of interest over the years, seeing as he was sometimes continuously overdrawn for a decade at a time.
Similarly, Vickers & Da Costa can only have racked up a ton of commissions from all those trades, as well as interest on brokers’ loans, and the Churchill order-flow was so lucrative for their counterparties that surely someone made it worth their while. His long trip to North America in 1928-9 can be read as a long con – at every step of the way, he stayed with stockbrokers or investment bankers, and at every step of the way, he made terrible investments. Bernard Baruch, especially, comes out of this badly, and his stock tips worst of all.
On the other side of the account goes the lost sleep over the question of whether he would ever pay up. His trade creditors had it even tougher, as he tended to treat bills as an alternative source of liquidity. Some went unpaid for five years on the trot. He owed six-figure sums to his tailor, saddler, and wine merchant, although he did make regular payments on account so there was some cash coming in. The longest delinquent account was actually to Grunebaum & Co, cigar importers.
Lloyds eventually cracked on the 18th of June, 1940, as Charles de Gaulle made his momentous broadcast on the BBC, called in the overdraft, and gave Churchill twelve days to find the cash. It’s fair to say their fiduciary commitment to shareholder value was above and beyond. What’s more astonishing is that he found it, almost a million in today’s money. Partly he borrowed from a mate, the co-owner of the Economist Sir Henry Strakosch. He also badgered his publisher to hurry up with a large royalty cheque. As a result, on the 21st, he not only made nice with the bank manager, but also paid dozens of old bills.
One way to look at his finances is as an exercise in cash-flow management of the kind summed up in Adam Kotsko’s classic financial advice for graduate students, the art of being broke. Churchill as a Grad Student isn’t actually that far wrong – we’re talking about someone with no cash and lifestyle expectations way above his income, but who has substantial long-term earnings potential. Like Kotsko, he got by through ruthlessly prioritising those payments that had to be made now, in full, and in cash, and letting the others ride, as well as always maximising the committed but undrawn credit available.
He behaved similarly with the Inland Revenue and frequently used his political status to work out on them, although the Revenue countered by threatening embarrassing public hearings. In 1942, within weeks of the vote of no confidence, he was willing to make three hours’ time to meet his tax adviser. He claimed that the money he got from a series of articles wasn’t royalties, but actually a capital sale of the copyright that just happened to be divided up in tranches, not just once but twice. He retired as an author for tax purposes on three separate occasions, and claimed to have written his best or at least most enjoyable book, My Early Life, purely in order to pay a tax bill.
In the end, one important lesson from this book is that perhaps standards of public integrity and financial probity have actually improved.
In 1923, Churchill accepted a £250,000 fee to lobby on behalf of Shell Oil. He used this money to underwrite part of a major bond issue by Daily Mail & General Trust, a newspaper that also published him and an obvious source of political influence, in exchange for a 2% commission. Vickers, Da Costa called in a favour with DM>’s merchant bank to hold a chunk of the business back for him, after Churchill had Shell send the cheque to his brother Jack’s home address for secrecy’s sake. Jack, of course, had just made partner at Vickers, Da Costa, no doubt in part because he brought Winston’s account with him from Grenfell’s and it wasn’t yet obvious what a mess he was going to be. Churchill collected on the transaction, went to stay with the Duke of Westminster in Mimizan, and proceeded to lose the lot at the casino in Biarritz.
I doubt you’d get away with that now.