How Churchill Made—And Lost—A Fortune in 1929

"No More Champagne: Churchill and His Money," by David Lough. Picador

Extracted from No More Champagne: Churchill and His Money, by David Lough, published by Picador.

Winston Churchill had been preparing for the loss of his ministerial salary well before the Conservative government of which he served as chancellor of the exchequer conceded defeat after the election of May 1929.

Among those he met while settling contracts to write newspaper articles and a biography of his ancestor, the first Duke of Marlborough, was the leading New York literary agent Paul Reynolds.

Reynolds advised Churchill to visit America to build up his transatlantic readership and was pushing at an open door: Churchill already planned a break from Britain, and his London agent had given the same advice. The trip took on extra allure when Churchill's American friend Bernard Baruch relayed an offer from an American college to pay Churchill's travel costs in return for a lecture.

Churchill had worked closely during the First World War with Bernard Baruch, now one of Wall Street's leading investors, and asked his friend for help in making plans for a family visit. Churchill was to sail westwards to Quebec (with his teenaged son Randolph, his brother Jack and Jack's son John), cross Canada by train, then travel down the U.S. West Coast to California before returning eastwards by train to New York.

Baruch sketched out possible hosts on the margin of Churchill's letter: William Randolph Hearst in Los Angeles, Paul Mellon in Pittsburgh and Samuel McClure in Chicago. Churchill himself added Charles Schwab, chairman of Bethlehem Steel, whom he had met in 1914 after Schwab witnessed the sinking of a British warship en route to London and immediately promised his factories' help in building submarines for the British.

Churchill had to bolster his finances before leaving: his checking account was already £8,000 [$600,000 in today's dollars] overdrawn, but a tax payment of £1,000 [$75,000 in 2015 dollars] was overdue and another £4,000 [$300,000] would soon follow.

Mentally he had earmarked his publisher's advance for the Marlborough biography to a return to the world's booming stock markets rather than paying tax. Before he sailed, a short burst of trading produced enough profit to pay the tax immediately due.

Early in August his party boarded The Empress of Australia, a Canadian Pacific ship whose owners had offered a free Atlantic passage and a private railway carriage across Canada in return for four speeches along the route. At Quebec, Charles Schwab's personal assistant offered his employer's private railcar for the journey back across the United States. "We timidly suggested paying the haulage," Churchill wrote to his wife Clementine, "but this was brushed aside with pained looks."

The Canadian Pacific railcar, the Mont Royal, was "a wonderful habitation," he reported home. "Jack and I have large cabins with big double beds and private bathrooms. … There is a fine parlour with an observation room at the end and a large dining room which I use as the office."

All across Canada Churchill was excited by the money-making opportunities in exploration for oil and gas. On reaching the Prairies, he asked his London publisher to pay his next set of royalties early and to his stockbroker, not the bank, so that he could take advantage of investment opportunities "which may not be open by the time I return."

In Winnipeg he transferred £2,000 [$150,000] from London to a local commodity trader and became the proud owner of stakes in two small oil companies. Through writing and investing, Churchill told Clementine, he had earned nearly £6,000 [$450,000] since leaving London, yet paid for virtually nothing.

1023_Winston Churchill
A statue of Britain's former war-time prime minister Winston Churchill is covered in snow in Parliament Square, London, January 28, 2004. Toby Melville/Reuters

While in Vancouver, he committed another $2,000 [$30,000] to a Calgary exploration venture: "Now, Mr Churchill," wrote its fast-talking promoter, "to be quite frank with you, I liked your manner of fast action in accepting our proposition, showing that we Britishers can make up our mind in a hurry as well as any Yankees can."

Early in September the Churchills reached Seattle before enduring a less comfortable night on a public train down America's western coast. "I am lying on the top berth of our compartment," Randolph confided to his diary. "Papa is unpacking and swearing down below. We miss the Mount Royal."

They transferred early to cars to reach San Francisco, where they stayed with the banker William Crocker, before moving on to William Randolph Hearst's mansion and ranch at San Simeon.

There Churchill encountered William Van Antwerp, another man on Baruch's list and a partner of the securities firm E. F. Hutton. Within days Churchill had opened a new account with Hutton and told Clementine, in a letter marked "All v[er]y secret," that £22,000 [$1,650,000] of "earnings" had "come to hand" (although much of it was for books or articles still to be written or investment profits still to be realized). "I am trying to keep £20,000 [$1.5 million] fluid for investment & speculation," he told her. "This 'mass of manoeuvre' is of the utmost importance and must not be frittered away."

In between daytime studio tours of Hollywood and late-night parties with the film world's élite, Churchill set about deploying his new reserve: half was to be kept in London and half invested anew in America through Hutton.

Four days later, after lunch with Charlie Chaplin on the set of City Lights, Churchill reported his first success: he had made a profit of £1,000 [$75,000] on speculation in a stock called Simmons. "There is a stock exchange in every big hotel," he told Clementine. "You go and sit and watch the figures being marked up on slates every few minutes."

Emboldened, he bought shares in two more of Van Antwerp's recommendations and then handed his new friend full authority over his share account while he travelled eastwards by rail. "His firm has the best information about the American Market," he wrote to Clementine. "All this looks very confiding – but I am sure it will prove wise."

Van Antwerp's telegrams pursued Churchill's progress eastwards in Schwab's railcar. A second cable of October 1 might have sounded a warning note: "Market heavy. Liquidating becoming more urgent."

There was a lull in activity until Churchill reached New York, where Baruch provided him with a desk and introduced his own East Coast brokers. Churchill signalled Van Antwerp that he was once again ready "to take command" on October 8. Over the next four days his turnover through Hutton in San Francisco reached $200,000 [$3 million], while he also dealt in London and New York. He began to lose track of his net positions which were now spread across three different brokers, markets and time zones.

The following week, Churchill's turnover with Hutton doubled to $420,000 [$6.3 million in 2015]. At the end of it, Baruch took him on a four-day trip to Virginia's Civil War battlefields, where their pilgrimage was punctured by only occasional brokers' calls. They arrived back in New York on Wednesday October 23, storm clouds were gathering as traders followed the tortuous passage through Congress of the Smoot–Hawley Tariff bill.

At the opening bell in the New York Stock Exchange on Thursday October 24 prices fell by an average of 11 per cent. Leading bankers stemmed the panic by authorizing the exchange to bid for large blocks of leading shares and the Dow Jones index closed only 2 per cent down.

That evening, Churchill asked Van Antwerp for advice. "I believe yesterday's debacle laid the foundation for a constructive advance," his broker replied, suggesting fresh purchases. Churchill invested another $26,500 [$397,500] on the Friday morning before spending the weekend trying to close his American accounts in advance of sailing home on the Monday evening.

His first inkling of serious losses did not come until Monday when he tried to make sense of Hutton's valuation at the close of Friday: it was much lower than he was expecting. He cabled Hutton urgently to ask whether there was a mistake: "No" came the reply. Share prices ended the day down by a record 13 per cent. That evening, Churchill's toast at Baruch's farewell dinner for New York's financial élite was to "Friends and former millionaires."

The full extent of Churchill's own losses did not sink in until the following day, Tuesday October 29, while he crossed the Atlantic. He used prices from the ship's ticker tape to recalculate his fortunes. The tape did not stop recording its litany of losses until 7:45 p.m. in the evening. The Dow Jones index had lost another 12 per cent: over two trading days, $30 billion of the market's $80 billion value had disappeared.

Churchill always told friends that his losses amounted to $50,000 [$7,500,000]. But this was only part of the story. He was lucky to escape damage on the shares he had purchased via Bernard Baruch's brokers, because Baruch felt partially responsible. Two days later, he transferred to Churchill a $7,200 [$108,000] personal profit he had made on a single share.

Even after Baruch's help, Churchill's losses almost certainly exceeded $75,000 [$1,125,000]. He waited until he met Clementine on the station platform in London before telling her the grim news that he had lost all his advances for the Marlborough book before having written a single word.

Nevertheless, in a newspaper column he wrote a month later, Churchill showed that the Crash had not dislodged his abiding sense of America's strength and resilience. Within a decade this instinct would shape his wartime strategy and ultimately transform his finances.

Extracted from No More Champagne: Churchill and His Money, by David Lough, published by Picador.

Author's note: In this article, values shown in USS were multiplied by 15 to give the multiplied approximate 2015 equivalent; figures shown in £ were multiplied by 75 to reach today's US$ equivalent.