History Investing

East India Company

Incorporated in 1600 was one of the first traded stocks in the world. There is no dearth of evidence that East India’s operations were highly profitable and they reaped profits in shiploads (boatloads). Apart from India, the company had near monopoly in trade with China (opium) and America (before Boston Tea party). It was so successful that it was called ‘The Company’ during its heydays.
What is surprising is that throughout its 2 century of profiteering, the company did not make much wealth for its investors. In 1772, no one was ready to loan money to the Company because of rampant corruption in the ranks. The top man, Warren Hastings was impeached on corruption charges and his predecessor Robert Clive also faced many corruption charges. In 1773 (when company was at its heights) the British Government passed Regulating Acts to control corruption. However Company’s finances never recovered and in 1857 it declared bankruptcy and transferred its assets (right to rule India) to the Crown.
I do not want to start a patriotic debate, but just want to raise the importance of corporate governance while choosing one’s stocks. Traditionally Indian businessmen were infamous for over-invoicing and pocketing part of the proceeds raised from banks/government and stock market. The practice has been slowly changing, but still there is no dearth of company which makes huge yoy profits and yet little or no dividend/capital growth.