Fred Smith's Secret Gamble
"You took our last $5,000?!"
Good morning, everyone.
This week’s newsletter includes: the casino gamble that made FedEx, and what Ray Dalio said to me last week.
The $5,000 Blackjack Bet That Saved FedEx
In 1973 FedEx lost $29 million and was going bankrupt, so the Founder flew to Vegas with the last $5,000 and risked everything on a game of Blackjack…
Fred Smith launched FedEx in 1971 with $4 million inheritance from his father’s airline business and $80 million in loans.
The concept was groundbreaking - air transportation of small, essential goods for efficiency.
But fuel costs skyrocketed.
FedEx couldn’t escape its crippling debt and investors refused to lend more money to the firm.
The company had just $5,000 left in their bank account, but owed $24,000 in fuel bills that week.
Without telling any of his co-founders or colleagues, Fred made a desperate decision…
He took the final $5,000, flew to Las Vegas and bet it all on Blackjack.
Fred’s secret sauce was the ‘Hi-Lo’ card-counting method.
A strategy which only works if the casino plays with one deck of cards.
That, and a chunk of personal confidence: “we played a lot of Blackjack in officers clubs back in Vietnam…I was a very good player” he said.
After hours at the table – the risk paid off.
At 3am, Fred cashed in his chips and walked out of the casino with $27,000 in his pocket.
He returned to the office with a wad of cash.
His co-founder and friend Robert Frock was stunned…
Robert: “You mean you took our last $5,000 – how could you do that!”
Fred: “What difference does it make? Without the funds for the fuel companies, we couldn’t have flown anyway!”
He used the victory to buy some time and secure critical additional funding from investors.
This money allowed the company to stabilize, launch a new advertising campaign and regain investor confidence.
A few years later, FedEx turned its first profit and went on to become a billion-dollar business.
Fred reflected on that time:
“No business school would recommend gambling as a financial strategy, but sometimes it pays to be a little crazy early in your career.”
Recommendation’s
Fred’s son Arthur Smith joined a Barstool podcast in 2021, and they called Fred live to ask him exactly what happened in Vegas. Watch it here.
What I’m reading: Ray Dalio’s “How Countries Go Broke: The Big Cycle” (not affiliate link). I love Ray’s writing style, and had the good fortune of meeting him recently - we spoke about his book and life’s work. He said “it feels like I’m just getting started...”
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Joseph Cass