James E. Casey was 19. It was 1907, and he'd already started two delivery businesses. He and a partner borrowed $100 from a family friend and tried a third time. The office was the basement of a Seattle saloon. They got around on a bicycle and Seattle's streetcars. That business became United Parcel Service (UPS).
Marc Levinson tells the story in The UPS Man, reviewed in the Journal by Virginia Postrel. That $100 is about $3,600 today. The big idea came in 1909. A menswear store let Casey handle its parcels for a capped 17.5 cents each. In return, the store used him and nobody else. Casey then mixed that store's packages with everyone else's. Postrel calls this the first step toward the hub-and-spoke system UPS still runs. A fourth partner later put in $10,000. The pivots followed. Oakland in 1919, Los Angeles in 1922, and the name we know.
Here's the part investors should read twice. For most of the century, UPS's edge was permission as much as trucks. Starting in 1917, California made trucking firms prove the public needed them. UPS won carve-outs that rivals couldn't. It charged more for heavy items. It left fixed routes to reach the suburbs. In 1927 it turned in an unlicensed Los Angeles rival. Regulators shut the rival down, and UPS bought the wreck. Postrel's line is that good lawyers mattered as much as good sorting.
Owned by the people who ran it
Casey laid out the two-day, anywhere-in-America plan in 1954. When he stepped down in 1962, the company was carrying 107 million packages a year from city to city. He died in 1983 at 95, having left the board shortly before. All that time, managers owned nearly the whole company. The IPO didn't come until 1999. By then trucking, rail and air freight had all been deregulated. The moat was gone. Profits got harder, Postrel notes, and customers got more of the benefits.
Our read
This is Investments and Risk (IN04), with a side of patience. Two lessons sit in one book. First, the UPS managers owned the place they ran for most of a century. Whatever the company was worth in 1999, nearly all of it was theirs. That's employee ownership working the way it should. Second, their edge for most of those years was a regulator's permission. When the rules changed, the easy profits went with them. So when you own your employer's stock, ask what the edge really is. A product, a habit, or a permit.
One thing in your plan. The employer stock in your 401(k), plus any options grant. One check this week. Add it up as a share of everything you own, and write the company's edge in one sentence. If that sentence has the word regulation in it, size the position like a bet. You check the gutters in October, long before the storm. We're glad to run the count with you.