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Passion for Reality

Passion for Reality: The Extraordinary Life of the Investing Pioneer Paul Cabot

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    Passion for Reality
    Book Description:

    Paul Cabot (1898--1994) was an innovative mutual fund manager and executive known for his strong character, charismatic personality, and trendsetting financial achievements. Iconoclastic and rebellious, Cabot broke free from the Boston Brahmin trustee mold to pursue new ways of investing and serving investment clients.

    Cabot founded one of the first mutual funds -- State Street Investment Corporation -- in the early 1920s, campaigned against the corrupt practices of certain other funds in the late 1920s, and lobbied on behalf of key New Deal securities legislation in the 1930s. As Harvard University treasurer, he increased the allocation of the endowment to equities just in time for the bull market of the 1950s, and as a corporate director in the 1960s he campaigned against conglomerates' abusive takeover strategies.

    Having spent nearly two decades working for Cabot's company, State Street Research & Management, as an analyst, research director, portfolio manager, and chief investment officer, Michael R. Yogg is well positioned to share the secrets behind Cabot's extraordinary success and relate the life of an extraordinary man. Cabot pioneered the use of fundamental stock analysis and was likely the first to take up the progressive practice of interviewing company managements. His accomplishments all stemmed from his passion for facts, finance, and creative thinking, as well as his unbreakable will, facets Yogg illuminates through privileged access to Cabot's papers and a wealth of interviews.

    eISBN: 978-0-231-53702-5
    Subjects: Finance, History, Economics, Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
    (pp. ix-xvi)
    John C. Bogle

    As Thomas Carlyle once said, “All that mankind has done, thought, gained, or been; it is lying as in magic preservation in the pages of books.” Yet there are precious few books that have focused on the history of the U.S. mutual fund industry, a burgeoning field that has revolutionized the way that Americans save and invest over the past nine decades and that carries the potential to play an even larger role in the future.

    From its modest beginnings in 1924—just three funds, with assets totaling only in the tens of millions—mutual funds now comprise America’s largest...

    (pp. xvii-xviii)
  5. Introduction: That Passion for Reality
    (pp. xix-xxvi)

    How can I write objectively about someone I liked and admired? In the case of Paul Cabot, this question almost answers itself. He wouldn’t have had it any other way. Paul is often associated with the phrase, “First, you’ve got to get the facts. Then you’ve got to face the facts,” the quintessential expression of hardheaded rationalism, applied to the investment business. He faced the facts about stocks, business associates, and himself.

    Why am I writing about Paul Cabot? To explain this I must go back to 1978. In that year I completed my PhD in history without prospects for...

  6. 1 Family, Education, and Army Service
    (pp. 1-25)


    Paul Cabot fired, pulled his ROTC rifle in from the window of Persis Smith Hall, and gleefully surveyed the damage. Students were holding a dance in the quadrangle below, and the shot “had a terrific effect. All the little girls thought the Germans were out for them. They all rushed for shelter and there was terrible excitement.”

    It was a beautiful warm spring evening, May 29, 1918, at the end of Paul’s freshman year. The next day he would leave Harvard for ROTC camp in Lancaster, Massachusetts, and, one month later, move on to the army training camps at...

  7. 2 The Twenties
    (pp. 26-48)

    After about six months in London, nominally working for the First National Bank of Boston but actually studying the British investment trusts and researching his doctoral dissertation on equity valuation, Paul returned to Boston in late 1923: “When I got back . . . I was still very interested in stocks, common stocks. I wasn’t a damn bit interested in bonds and money obligations.”

    In spite of the strong language, Paul was not denigrating bonds and bond management as much as he was contrasting his interests with those of Robert Fleming and other British managers he had met in London....

  8. 3 The Crash, the Depression, and State Street’s Response
    (pp. 49-72)

    As it turned out, Paul Cabot and his partners were over a year early in their warning. The S&P gained nearly 44% in 1928, the best showing of the decade. Yet, during the early weeks of the year, at the time when they were writing the 1927 Annual Report, they fretted over the speculation in the market—evidenced by the high trading volume and high levels of margin debt—in spite of an economy that had been faltering since the previous summer. The fact that they themselves had participated in the speculation did not lessen their concerns about it. The...

  9. 4 The Revenue Act and the Investment Company Act
    (pp. 73-106)

    Sometime in the late spring of 1936, President Franklin D. Roosevelt sat alone in his White House study reading analyses of the bill that would become the Revenue Act of that year. The issue had been a contentious one since the President’s Budget Message on March 3, with various factions of the House of Representatives, Senate, and Treasury battling over questions of tax equity and efficacy. But since January 6, when the Supreme Court had ruled the Agricultural Adjustment Act unconstitutional and thereby invalidated a tax that had generated $500 million in annual revenue, Roosevelt had believed a tax increase...

  10. 5 Moses and Jeremiah
    (pp. 107-135)

    One evening in the late 1930s, while on a business trip to New York, Paul invited two close friends, Charlie Dickey of J.P. Morgan and Sidney Weinberg of Goldman Sachs, to cocktails and dinner at one of his clubs. The next morning, the club’s acting president came up to Paul and cautioned, “You mustn’t do that again, what you did last night.”

    Feigning innocence, Paul asked, “What did I do last night that I shouldn’t do? Was I disorderly, making too much racket or something?”

    He said, “Oh, no, no, no. You brought Sidney Weinberg in here and there’s a...

  11. 6 Harvard’s Treasurer
    (pp. 136-166)

    For many years, when Paul Cabot was treasurer of Harvard University, Charlie Flather had the job of briefing him before his biweekly meetings with the Harvard Corporation. Paul had traditionally given this task to the most junior analyst, but when it was Charlie’s turn to relinquish these duties, he requested to stay on. He felt that it was a matchless opportunity to learn from a brilliant investor. Charlie recalls,

    [Paul] was always direct. I always knew where I stood. . . . I particularly recall how much fun it was and what a great sense of humor he had. On...

  12. 7 North Haven and Needham
    (pp. 167-184)

    Productive people, like Paul Cabot, tend to love their work, but they also need to get away from it from time to time. They need vacations and homes and, if they can afford them, vacation houses. Paul was refreshed and restored by his vacations, by his homes, and especially by his vacation house at Pulpit Harbor in North Haven, Maine.

    Paul’s grandfather, who bought the land on Heath Hill in Brookline in 1871 for his home and eventually for those of Henry and Anne and of Bob and Ruth (Paul’s parents, uncle, and aunt), made an even more significant purchase...

  13. 8 Letting Go
    (pp. 185-213)

    December 8, 1941, was not a “day of infamy,” but was a poor one on Wall Street nonetheless. The stock market had closed on Saturday with the S&P Index at 9.38, down 11% for the year. On Monday it fell another 4.4% and on Tuesday an additional 3.2%, a total of more than 7.5% in the two days following the Japanese attack. Paul was already working in Washington. He had not predicted Pearl Harbor any more than he had predicted the 1929 crash, but he was in the right place at the right time. He had anticipated war in the...

  14. Epilogue
    (pp. 214-226)

    Shortly after the first edition of this book appeared in 2006, the global financial system nearly collapsed. As a result, much interest in this book has centered on how Paul Cabot’s perspective can help us understand the crisis and the other significant financial events of the past three decades.

    It was January 1983—thirty-one years ago as of this epilogue—that the sale of State Street Research & Management Company to Metropolitan Life closed, and Paul Cabot began withdrawing from active engagement with his company and the financial world. Symbolic of this, he relinquished his position as chairman of the...

  15. NOTES
    (pp. 227-246)
  16. INDEX
    (pp. 247-270)