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7/11/04
Victor Niederhoffer: 12 Thoughts on DuPont

1. This seems a nice retrospective congestion play with the stock bouncing back and forth 5 points like a yoyo around 50 in 2000. Simple five-point reversal systems take out about 60 points over the period.
2. One has to admire a company that over a 200-year period has been one of the leading U.S. companies and is today a stalwart of the Dow Industrials and the S&P 500.
3. What a fantastic innovative company this is. From its beginnings as the premier U.S. maker of gunpowder and dynamite, the explosives that helped us open up the country, build the tunnels and move the mountains, they went on to give us cellophane, nylon, Kevlar, Neoprene, plastics and freon.
4. The company's leaders state that they honor the spirit of contracts as well as the letter, and they seem to believe it. What a contrast to the insurance companies that fight you tooth and nail whenever you have a claim. It brings to mind the old New York saying about why WASPs are necessary: Somebody has to pay full price. A typical anecdote: Accused of profiteering in World War I, the company did all its work on splitting the atom in the Manhattan Project for a dollar over costs. The government demanded 30 cents back because it finished in 70% of the estimated time.
5. Bjorn Borg's Monte Carlo tennis shop went belly up partly because to maintain a chic air nobody in tennis shorts was allowed into the place. One seems much the same at work in Longwood Gardens, funded mostly by a bequest of the former owner, a DuPont family member. Signs draw the attention to the Longwoods' gardeners use of mosquito fish to catch mosquitoes, and sticky strips and lady bugs and kaolin to catch bugs and cats to catch mice -- but nary a pesticide.
6. Yes, DuPont appears to be a company out of Atlas Shrugged. They seem to be ashamed of their heritage. Their slogan used to be "Better living and better products through chemistry." Now they've stopped using that, and they're a biology and electronics company, and oh yes, they use a bit of chemistry, I'm told, in their hybrid seeds for farmers.
7. The Hotel DuPont is a marvel, built in 1915 out of limestone 12 floors high and still running. Unfortunately, this has to be the only 100-year-old hotel in the world that has adapted the infernal Hyatt method of reducing costs and liability by refusing to give you windows that open. One can understand it in the Vegas hotels and hospitals -- but in Wilmington, Delaware? Excellent Howard Pyle painting of wagons delivering DuPont gunpowder for the Battle of 1812, almost making up for this mockery.
8. DuPont invented freon, the refrigerant used to cool the world's food since the 1930s. Freon was regarded as a miracle substance because, unlike other refrigerants, it was non-toxic and nonflammable. Eighty-five nations agreed to phase out freon under the Montreal Protocol in an effort to protect the ozone layer. DuPont also makes the replacement -- but the corporate museum at Wilmington makes no mention of that.
9. The lobby of the Hotel DuPont has a display devoted to "The miracles of science," but it's entirely devoted to such things as alliances with the EPA, spreading of work during the Depression to save job, the company's innovative Blue Cross health coverage, and its egalitarian policies of nondiscrimination in the workforce (but where is Mr. Jew?) and its biodegradable plastics.
10. How did this company outsmart the Bronfmans to get them to sell 25% of their shares back at a 10% discount when so many others would have been willing to pay so much more? Why is the answer to such questions always, "romance," as Rumpole would say. In this case it was Kid Bronfman's desire to get into the movie industry, where, as my daughter Galt points out, one has only two benefits: getting ... and getting your kids into the business.
11. Amazing how many of our great industrialists have devoted the major part of their last half of life to their gardens. DuPont's Longwood Gardens, Vanderbilt's Biltmore estate gardens in Ashville, N. Carolina, Cecil Rhodes' botanical garden in Capetown, South Africa; the railroad magnate Huntington's garden in San Marino, Calif.; Eastman's 35 gardeners in Rochester, John Rockefeller's tree farming, Dan Grossman's planting at his Short Hills, N.J., estate, Mr. E's tomatoes and trees.
12. How many other companies are out there that are ashamed of their roots and seek to palliate the ire of their enemies through stating their purpose of humanitarian and egalitarian improving of the environment rather than the pursuit of profit, which by its very nature leads to harmony and mutual benefit at every turn. (Witness the good that DuPont products have done.) And is this the reason that DuPont's profit margin is 0.5%,  pretax? And are the others that have lost their way good congestion plays also?

7/13/2004
A practical and scholarly reader comments:

"Freon" is a brand name for R-12 CFC refrigerant (banned under the Montreal Protocol in perhaps the most significant display of religious-fervor-as-science since Galileo's beatings at the hands of the Pope). DuPont did not invent it. They merely trademarked and marketed it quite successfully under the Freon name. R-12 was invented by Thomas Midgley Jr. who worked for Dayton Engineering Labs (Delco) under the direction of Charles Kettering. I would give credit to Midgley, who reportedly only spent 3 days on the project before discovering it. However, if you prefer to use the accomplishments of a known individual to lionize the virtues of a corporate meritocracy, then General Motors (owner of Delco during Midgley's research there) should get the credit, not DuPont.

I have one other note regarding big business's attempts at mollifying the environmentalist/Neo-Luddite lobby. There ought to be a 'death quotient' assigned to their corporate profiles. The best DQ I have come up with (woefully inadequate, but perhaps your brain trust can improve upon it)-

Number of individual deaths attributed to marketed chemicals (CFC's if there were any, lead, asbestos, etc),

multiplied by the average life expectancy of the victims (the full lifespan used here for the sake of simplifying the calculation),

all divided by the total population times their increase in life expectancy from a pre-technology era benchmark (I use the year 1900).

For example-

the official asbestos (Kellogg Brown & Root) mortality total stands at 43,073.

Life expectancy for US citizens-

In 1900- 47.3 years
In 2000- 76.9 years
or a 29.6 year differential (62.5%!!).

So-

43,073 x 76.9 years = 3,312,313 years
276,000,000 x 29.6 years = 8,169,600,000 years

For a death quotient (DQ) of .000405 for KBR.

While not defending the use of, and exposure to, known toxins like asbestos, the DQ is a pretty solid counterargument to those who ignore the benefits of science in favor of lamenting over its inherent risks. Any toxin's case history will yield a similarly very small number. I'll leave the environmental damage quotients to the eggheads in the carbon credits department at Cantor Fitz, as they are already way ahead of me and might even manage to turn a profit on it.

DD is a great chart though. I am giddy with anticipation as we reach the apex of this pennant. Thanks for mentioning it.

Regards,

Jonah Ford
(Former refrigerator repairman)<

Comment from the Wiz:

I think it was Jackie Mason who said of wealthy Gentiles, "They LOVE animals ... hate PEOPLE, but love animals."

In their waning years, no surprise that they withdraw to Nature, building a fantasy play world. The final reward to wealth, being left the Hades alone in one's garden.

Contrast to wealthy New Yorkers who in their golden years take up the Upper East/Hamptons charity cocktail party hobnobbing circuit.

Comment by Jim Sogi:

Ancient Chinese proverb: If you want be happy for an hour, drink a bottle of wine; If you want to be happy for a year , fall in love: If you want to be happy for the rest of your life, take up gardening.

Comment from an insider:

I used to work for the Mellon's law firm (including the Mellon family work as well as their businesses). For many years the Mellons have guided their businesses in a direction as paternalistic as bottom-line oriented. I believe it is this mixed direction which is at least partly the cause of the mediocre performance of these businesses. Example: Mellon Financial (formerly Mellon Bank), which is not strictly bottom-line oriented, has been a mediocre performer for many years.

You might recall that in the early 1970's, Mellon-controlled Gulf Oil was heavily implicated in the foreign bribery scandals. Horrified by this (I certainly don't condone it), the Mellons got together & kicked out Gulf's CEO, replacing him with someone who was as concerned with moral rectitude as with profits. When Gulf later came under attack by Boone Pickens, the new CEO lacked the cojones to fight him tooth & nail, & eventually surrendered, selling Gulf to Chevron. Gulf lost its focus, then lost itself. Ironically, the loss of Gulf from its Pittsburgh home turned out to be a bigger blow to the city than any transitory scandal taint.