Aaron Burr

Aaron Burr (1756-1836) was an American politician, revolutionary war hero, and the third Vice President of the United States, most famously remembered for his fatal duel with Alexander Hamilton. For investors, however, his name is less a political footnote and more a riveting case study in financial ambition, cunning, and ultimate ruin. While not an investor to emulate, his financial life serves as one of history's great cautionary tales. Burr’s story is particularly relevant for value investing practitioners because it vividly illustrates the dangers of opaque corporate structures, excessive leverage, and the stark difference between sound investment and wild speculation. His most notable venture, the founding of the Manhattan Company, was a masterstroke of corporate misdirection that highlights the timeless importance of rigorous due diligence and skepticism toward management's stated intentions. Burr’s life is a dramatic reminder that genius and ambition, when untethered from ethics and prudence, often lead to a portfolio of regrets.

Burr's financial escapades provide timeless lessons on what not to do. His career is marked by two key themes: the deceptive use of corporate charters and the catastrophic consequences of debt-fueled speculation.

In 1799, New York City was desperate for a clean water supply. Aaron Burr stepped forward with a public-spirited solution: The Manhattan Company, chartered by the state to build a water system. Eager politicians and investors backed the project. However, Burr, a brilliant lawyer, had embedded a truly remarkable clause deep within the company's charter. It allowed the company to employ its surplus capital in any lawful financial transaction. What was this for? It was a corporate Trojan Horse. Once the charter was granted, Burr used the clause not for water pipes, but to establish a bank: the Bank of the Manhattan Company. This new bank became a powerful rival to Alexander Hamilton's Federalist-aligned Bank of New York and the First Bank of the United States. While he delivered a rudimentary (and notoriously inadequate) water system, his true aim was to break his rivals' monopoly on credit in the city. The bank he founded through this deception eventually evolved into the modern financial giant, JPMorgan Chase & Co.. For the investor, the lesson is crystal clear: Read the fine print.

• A company's founding documents and bylaws dictate what management can do, which may be very different from what they say they are doing.
• This story is a classic example of the need to investigate a company’s corporate governance and the potential for founders to pursue objectives that aren't aligned with all shareholders' interests.

Beyond his banking coup, Burr’s life was a testament to the dangers of speculation. He was constantly engaged in grandiose land schemes, borrowing heavily to finance his purchases with the hope of flipping them for a massive profit. This is the essence of speculation: focusing on price movements rather than the underlying productive capacity of an asset. Unlike a prudent investor who insists on a margin of safety, Burr operated with maximum leverage, leaving no room for error. When his political fortunes soured after the duel with Hamilton and a subsequent treason trial, his creditors closed in. Unable to pay his enormous debts, Burr fled to Europe for years to escape them. He died in relative poverty, a stark contrast to the wealth he once controlled. His story is a powerful illustration that borrowing heavily to chase speculative gains is one of the fastest paths to financial destruction.

Aaron Burr's life offers several enduring warnings for anyone trying to build wealth patiently and safely.

• Scrutinize Management and Motives: A charismatic and brilliant leader can be dangerous if their interests are not aligned with yours. Judge management on their transparency, track record, and integrity.
• Distinguish Investment from Speculation: An investment is based on the analysis of an asset's intrinsic value. A speculation is a bet on price changes. Know which game you are playing.
• Beware the Siren Song of Leverage: Debt magnifies returns, but it also magnifies losses. The value investing approach champions a strong balance sheet for the companies you own and for your own personal finances.
• Never Outsource Your Thinking: The original investors in the Manhattan Company thought they were funding public infrastructure. They weren't. They were, unwittingly, funding a bank. It is your responsibility to understand exactly what you are buying.