The Garrulous Jay – Deal Of The Century

With Presidents Trump and Putin meeting in Anchorage today, it seemed an appropriate time to revisit one of the best real estate deals ever done.

At 4.00am on the 30th March 1867 the Treaty of Cession was signed between Russia and the US, transferring Alaska from the former to the latter.

The price paid by the US for the 586,412 square miles of land the country acquired was $7.2 million in gold. In today’s money that’s the equivalent of $157 million.

With hindsight this turned out to be an extraordinarily good deal for the US, and surely one that Trump himself would have been proud of.

It is perhaps surprising then that back in 1867 US Secretary of State, William H. Seward, was mocked in some circles for signing up to the Treaty. What some dubbed as ‘Seward’s Folly’ was perceived to be a vast, remote and icy wasteland delivering little of value apart from its limited natural resources of fish and fur. 

Alaska’s GDP today is $54.9 billion, with roughly $8 billion of that still coming from its natural resources, but today these are oil and gas not fish and fur.

While this figure is modest by US states’ standards, that is to overlook its extraordinary strategic value.

The land border between Alaska and Canada stretches to 1538 miles: longer than the US-Mexico border. Had history taken a different path that would have continued to form a line between Russia and The West.

What does the US ‘deal of the century’ tell us about the two parties to the trade?

With hindsight it would be easy to mock not Seward and the US, but the Russian Minister to the United States, Eduard de Stoekl, and his boss Tsar Alexander II.

At the time, however, Russia was short of cash after fighting the Crimean War and Alaska was a very long way from Moscow and seemed to offer limited economic value.

Geopolitically the US was considered a friendly power and one that would counterbalance that of the British in Canada.

The deal can therefore perhaps best be summed up as a triumph of strategy over tactics.
The US was playing to its long-term expansionist vision, while Russia was driven by shorter-term concerns around defence and economic expediency.

It might be too much to ascribe to Seward a vision that foresaw the strategic and economic value that Alaska would subsequently deliver, but perhaps Russia could and should have more clearly appreciated what it was giving up.

I think investors and fund managers can learn a lesson from this. In a world driven by quarterly numbers and short-term deliverables, and where the median tenure of an S&P 500 CEO is 4.8 years, it may pay to look out for businesses take a longer-term, more strategic approach, even at the cost of short-term criticism.