Grant, McClellan, Courage, and Caution

Lessons from two American Civil War Generals

I recently heard the maxim: “Everyone’s a value investor until stocks are cheap.” The joke suggests that investors are eager for low-priced assets during calm times but adjust their models downward once stocks decline so the assets no longer look attractive. Armed with worse financial figures, investors can freeze or, worse, sell at the wrong time. Even during times of chaos, a person’s actions matter. I often think about the contrasting approaches of Ulysses S. Grant and George McClelland, two famous generals from the American Civil War, during these periods of tumult. McClellan lost his position halfway through the war because he wasn’t aggressive enough, while Grant achieved tremendous success through bravery and boldness. I will give a brief outline of their personalities, discuss how they took decisions differently, and comment on the lessons they can teach us even today.

Their positions in 1860 dictated the way they made decisions.

McClellan started the war from a very lofty position. He was born in 1826 into a prosperous family in Philadelphia, the son of a distinguished surgeon. He graduated second in his class at West Point, served in the Mexican American war, and was one of the few Americans chosen to observe the Crimean War. Before the Civil War broke out, he worked as a railroad executive and even wrote a book on cavalry tactics that was used as a textbook at West Point. McClelland was an obvious leader for the Union Army. He built defenses around Washington DC and trained the Union Army, which was a tremendous force at its peak.

Grant began the war from lowly spot. He was born in rural Ohio in 1822, graduated from West Point, and graduated in the bottom half of his class despite having impressive horsebackriding skills. After handling logistics during the Mexican American war, he was pushed to resign from the military due to misconduct around drinking. He moved back to Ohio and worked for his family’s leather store, living in poverty in a small cabin while selling firewood for extra cash. To compare this to contemporary times, you could imagine him working as a salesman at Footlocker before the war began.

Most of us know the history: Grant eventually worked his way up to lead the entire military to defeat the Confederates. McClellan, in contrast, began as the chosen golden boy to lead the Union Army only to be forced to resign after failing to follow up in the battle of Antietam.

In 1860, their relative positions disabled and enabled the two future generals. McClellan was incredibly cautions and stayed away from conflict because he began the war from such a high station in life. In contrast, Grant could handle risk more appropriately because he had no psychological baggage dragging him down. McClellan followed the age-old problem in business and investing, the Endowment Effect, in which we hold on tightly to those things of which we have more than we should out of fear of losing them when in fact we would have to jettison them to move onward. Investors hold on to losers for too long, stay in bad jobs too long, and fear the worst all too often rather than moving forward with courage. In this regard, once again, McClellan appears the villain but just demonstrates those all-too-human qualities that each of us can understand. Grant’s experience, on the other hand, appears even more spectacular because he was able to remain clever and aggressive throughout the conflict despite facing challenges along the way. In this way, too much early success can be more of a liability than an asset. The two leaders illustrate the adage that premature success holds the seeds of defeat while early defeat plants the seeds of success.

McClellan used data and analysis to restrict his activity while Grant thought more dynamically of the role of relative positions of strength.

McClellan’s intelligence-gathering abilities were impressive in scope but fundamentally flawed. He led one of the largest armies in the history of the world with a massive industrial base behind it. Yet he used the data from his reports to convince himself to remain cautious and refrain from fighting. McClellan hired Allan Pinkerton, the founder of the Pinkerton National Detective Agency, as his chief Spy. Pinkerton wrote 30–40-page reports with tremendous detail. The Union spies interviewed Confederates who naturally inflated the size of their own enemy forces: a 19th century version of “garbage in, garbage out.” Also, Pinkerton and McClellan double-counted the enemy’s soldiers while undercounting their own. While McClellan reported only the active, healthy troops to Lincoln, Pinkerton’s figures for the Confederates included the walking wounded and ancillary staff such as cooks. He also increased the total figures by some multiples of that number “to be safe” (Pinkerton in Sears). To make matters worse, McClellan gave the Confederate soldiers “superhuman qualities” (Sears).

Despite these intelligence figure, McClellan always had a two-to-one advantage or more but thought he was outnumbered. He wrote to his wife, “I am in a terrible place—the enemy have from 3 to 4 times my force …” when in fact he had 192,000 troops versus the maximum of 60,000 for the Confederates (Wikipedia) in 1862. McClellan usually thought that he needed to conduct more preparation before fighting, stating at one point: “It has always been my opinion that the true course in conducting military operations, is to make no movement until the preparations are as complete as circumstances permit, and never to fight a battle without some definite object worth the probable loss” (McClellan in Sears, Wikipedia). As his biographer Stephen Sears writes, “McClellan’s sense of responsibility for the face of the nation—he could conceive of no one else meeting such a challenge—bred an anxiety so suffocating that at times it unbalanced his rational thought.” In other words, he was unwilling to take any decision until his information was utterly perfect, and in his favor, which was almost never.

To the reader (and Union patriot), this might sound like madness. But look inward, and it might not seem so foolish. Athletes often inflate the size of their opponents in their minds when they are worried. I am always intrigued by the number of downgrades to stock expectations by sell-side analysts on a big day of market declines even when there is no news. It’s always tempting to increase the inputs to a model when the world is panicking.

Even after some success, McClellan failed to move aggressively, and so Lincoln fired him.

McClellan guarded Washington DC in great fear that Lee’s army would invade the North with an army of 120,000 troops when in fact Lee had a third of that number. In the battle of Antietam, McClellan thought that Lee’s infantry was larger than the Union side although it was about just a third of the size. Lee was able to trick McClellan by moving the Confederate troops back and forth from side to side to make the Union think that the group was larger than it was. The battle ended in a draw because McClellan brought too few troops to the battle and failed to follow it up when it probably could have been an utter rout. Troublingly, after Antietam, McClellan insisted that his men rest rather than fight a retreating army. Even worse, he went to visit his wife for almost two weeks while Lincoln begged him to fight.

In contrast, Grant knew that absolute numbers mattered less than relative figures. I like the following line from his memoirs: “I was very impatient to get to Fort Donelson because I knew the importance of the place to the enemy and supposed he would reinforce it rapidly. I felt that 15,000 men on the 8th would be more effective than 50,000 a month later” (Grant written in 1885). Grant knew to strike with fewer men when the odds were on his side rather than wait. Likewise, when General George Meade told Grant that a famous axiom dictated not to fight two important battles close together, Grant replied in a serious but also half-joking manner that one should only heed such advice if he thought he would lose those battles. Lincoln liked Grant because “he fights,” and he looked for reasons to advance whenever possible. While Pericles, Kutuzov, and Fabius claimed that action would often lead to weakness, Grant understood that inaction had its own psychological challenges. He wanted his men to fight when the odds were in their favor, on a small or even a large scale. He fought sometimes to keep his men active, laid siege where required, and faced off head-to-head with the enemy in large battles when necessary.

When tired, Grant would be aggressive because he knew his opponent felt the same way.

Grant’s great skills rested in his ability to see into the psychology of the military leader on the other side of the battle. He knew that after a large fight in which his men became weary, his opponent likely felt the same. If, in his gut, he thought that he should slow down to recuperate, it was likely his opponent felt the same way, and therefore, it was probably wiser to push harder to take advantage of the opponent’s weakness. As he wrote to one aide: “Some of our men are pretty badly demoralized, but the enemy must be more so, for he has attempted for his way out but has fallen back; the one who attacks first now will be victorious …” Or, as Lincoln described, “[Grant] isn’t shrieking for reinforcements all the time …. He takes what troops we can safely give him … and does the best he can with what he has got.” Ron Chernow, his recent biographer, claims that Grant’s psychological insights were his greatest strength. Grant’s lines about life and direction are almost laughably clear-sighted: “In every battle there comes a time when both sides consider themselves beaten. Then he who continues the attack wins,” and “The art of war is simple enough. Find out where your enemy is. Get at him as soon as you can. Strike him as hard as you can, and keep moving on.”

It sounds like simple common sense, but this is difficult to implement. All too often we complain that we want more information, more capital, more time, better leads, faster internet, or everything else before we can achieve our goals.

In the twilight of 2022, almost everyone in the world has lived through multiple years of a pandemic, dizzying cycles of growth and economic contraction, and higher-than-usual inflation. Not many are fighting a military rebellion, but each has faced his or her adversity. What would it mean today to think like Grant as an investor or otherwise in life?

If one feels tired and worn out, one should realize others could feel the same too whether in investing, business, or otherwise. If we were to follow the ways of Grant, we would be aggressive while others would be feeling timid. Many of the best companies in the world are founded during difficult economic times because the competition is weaker, like Lee after Antietam. Rather than the worst, perhaps now might be the very best time to start a hobby, create a new product, learn a new skill, clean up that new dataset, research a new industry, read that thick book on the shelf, join that group, and more. Or, for that matter, perhaps now is the time to look at that area of the market that seems scary.

Sometimes we should move slowly like Pericles, Kutuzov, Fabius, and maybe even perhaps the cautious McClellan, but not now. Now seems to be the time to channel our inner Ulysses S. Grant.

Sources

Chernow, Ron. Grant. New York: Penguin Press, 2017.

Grant, Ulysses S. The Personal Memoirs of Ulysses S. Grant: The Complete Annotated Edition, Ed. John F. Marszalek. Boston: Belknap Press, 1885.

https://www.brainyquote.com/authors/ulysses-s-grant-quotes Sears, Stephen W.

George B. McClellan: The Young Napoleon. Boston: Da Capo Press, 1999. Wikipedia

This document is for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase any securities or investment advisory services. I am the Portfolio Manager of Barca Capital, LLC, but the views I express are my own not necessarily those of my firm.