In their recent episode of the VALUE: After Hours Podcast, Cassel, Taylor, and Carlisle discussed Iron Worm Success Led To Disastrous Investment Outcome. Here’s an excerpt from the episode:
Jake: Oh, okay. Well, that’s why they come here is for all the rosy outlooks. All right, so, this week’s veggies segment is from this book called Built by this woman engineer whose name is Roma Agrawal and shoutout to friend and fan of the show, George, who sent me this book. This is about the London tunnel and it has this checkered history that is interesting to go through.
Let’s rewind. Back in London, early 1800s, and the only river crossing in all of London over the Thames was the London Bridge. If you know anything about that, that was a complete disaster waiting to happen at all times. It would catch on fire, it would collapse periodically, it was really slow and expensive to get across. Basically, the Thames was almost uncrossable for the most part. So, in 1805, this company– [crosstalk]
Bill: I’m holding my hand up.
Tobias: That inspired the song?
Bill: Yeah, that’s I was going to ask was this song, because it fell or was the song because it was so shitty?
Jake: No, the song is from because like it was so shitty, pieces of it would fall over periodically.
Bill: So, it was always falling so, they created this song.
Tobias: Is that bad?
Jake: Yeah, that’s what the song came from. Okay. We’re done with nursery rhymes.
Bill: It’s like my whole education, Jake.
Jake: [laughs] So, 1805, this company was established that was to connect these two points that were only 365 meters apart. It seemed promising. Maybe we can span that distance. But it was still impractical to build a bridge of that length at that point with the engineering capabilities, the materials, plus that would have blocked a lot of ships that would be moving up and down there that went further upstream.
So, that was a big issue. The only remaining option was to create a tunnel under the river. But it was deemed impossible at that point by every engineer. Like, you can’t dig a tunnel that far, that deep, it’s just undoable.
Here’s this guy, this engineer named Marc Brunel, and he was sitting at the dock yard, and he was looking at this chunk of removed wood like a timber out of a ship from the hull of the ship. He observed this little worm working its way through the wood.
The worm had these two little sharp horns on its head. As it would wiggle around, it would basically gnaw at that wood, and turn it into powder, and then it would eat the powder. And then as the powder would go through, it gets mixed with these digestive enzymes and it would come out as this thin paste behind the worm as it’s working through. When that paste was exposed to air, it would harden and it would basically build– It was shoring up its own little tunnel.
This worm is working really slowly working its way through here. Brunel realized that, “Gosh, I think I could build a machine that would attempt to do something like what this worm is doing.” We got a little bit of some animal veggies going, which is always fun. But in Brunel’s vision of it, this iron worm was going to be twice as tall as a person.
He gets to building it and it’s basically this big iron cylinder that’s on its side with these blades on the front of it that are churning away at it. And men, because they didn’t have harnessed electricity to be able to do this yet in that way, basically, it was men that were just pushing these blades around to eat at the dirt really slowly and hydraulic jacks that would inch the cylinder a little bit forward, and then men clearing the dirt out behind it as it was going, and then bricklayers would come in behind them, and lay bricks around it.
So, it was basically recreating how this little worm was doing its thing. Brunel patented this invention and he called it the shield for some reason. I don’t know why. It seems like a dumb name. I definitely would have gone with iron worm or something.
Jake: Around that time, they found financing to go after this project to tunnel under the Thames. In 1823, they found private investors including the Duke of Wellington and they created the Thames Tunnel Company. The project began in 1825. But it was really slow work. It was progressing eight to 12 feet a week to try to get through this thing. Many workers including Brunel himself, they fell ill, because basically, the Thames at that time and I don’t know if it’s still like this, but it might be.
But it was basically just a sewer. Everything went in there, garbage, waste, bodies, that was like you just whatever you’re done with as a human, you threw it in the river. It was seeping in the sewage laden water and making everyone sick, basically, who was working on this project. It also would give off methane gas that would basically blow up with the lamps, the oil miners or the lamps from the miners. [chuckles]
Then the other problem was that they also had periodic flooding to deal with. Part of the roof of that’s going under the river would just cave in, and just fill the whole thing up, and drown a bunch of guys. At one point, Brunel’s son, he lowered himself down in a diving bell–
There was a leak. I don’t know if you guys know what the diving bell is, but it’s picture it like a ticket cup and put it under water, and the air stays there, and you can get in there basically and do work. Divers would use these. He climbs into this diving bell and gets lowered down to the bottom from a boat basically and he’s repairing basically the bottom of the river by throwing these bags of clay to basically cover up the breach that’s in the tunnel. Just shenanigans, right? Can you imagine trying to do all this stuff? Like your dad’s working on this and he has you going down to the bottom of a bridge?
Tobias: Hold the torch.
Jake: Yeah, get– [crosstalk]
Tobias: Hold the torch steady.
Jake: Get in there, son. I got a job for you. The tunnel flooded again in 1828. And eventually, these financial issues caught up with a project. And then they took the passage, and walled it off, and it sat vacant for seven years. Nothing was happening. 1834, Brunel raises more money, gets the project going again, more floods occur in 1837, 1838, 1840, and also fires from leaking methane.
Many men died. I don’t even know if they have an accurate count. Finally, 1841 its completed like 19 years after the project was started. It gets fitted out with lighting, and roadways, and a spiral staircase. And although, at the time, it was a total triumph of civil engineering. Everyone said that this was impossible. This guy pulled it off through this miraculous perseverance and really ingenuity to come up using nature as a little– as an inspiration.
But the Thames tunnel, it was a total financial disaster. It ended up only being used by pedestrians. There was no real commerce that was going through it. It became a major tourist attraction actually attracting about 2 million people a year that wanted to just come see this oddity and they pay a little bit of money just to walk through. And then it became the haunt of prostitutes and tunnel thieves, who just lurked under its arches, and they would mug passersby.
So, basically, go down there and– It is tunnel people living down there that– Better be careful when you go down there. Then it gets purchased in 1865 by the East London Railway Company, who’s trying to build the underground, basically. 1869, they put tracks in there, and installed a steam engine that was chugging around, and then later that all got absorbed into the London Underground.
I think what it shows that the construction of this was that it was indeed possible to build underwater tunnels now. It showed that for the rest of the world like look what you could do. There were tons of skepticism by every engineer. And now, it functions basically as a museum. They’ll have little concerts down there, apparently, and occasionally bar festivities.
But I think to tie this back a little bit, maybe to some things today, we’ve talked, I think it was Season 2 Episode 21, we talked about subjective value. Eugene [unintelligible [00:39:31] and their best use, then that would dictate what the value of it was worth. This tunnel went from being like, “God, this is going to allow this commerce, it’s going to make a ton of money.” Because the bridge was really expensive.
They were charging a lot. But it never became that. There’s your number one thing you thought you’re going to make money, that doesn’t work. Then it becomes the next best use becomes like people coming to see it as an attraction and an oddity, which is not really worth that much. Then it becomes like a place for prostitutes and thieves to come hang out and that’s probably not really worth that much.
Bill: Could be worth a lot, actually.
Jake: Well, yeah, Rick’s, I guess, figure that one out. And then it finally, actually got bumped back up again in value based on the underground could run trains through there. When we think about all these different assets that we’re buying at different points and we think, “What’s the next best use of this asset if it’s not being put towards what it’s currently using?” Because the world changed.
Gosh, tangibles, I think allow some room for that. But I think it’s becoming increasingly obvious to me that are clear that the intangibles world, there is no second usage. So, it is just an absolute cliff, when it’s not being put to use for what the current use case is, which just makes it harder to underwrite a level of value to it really, to find an intrinsic value, I think. Anyway, I find this whole thing fascinating.
The other thing, too, that’s interesting is huge engineering success, perseverance, and yet, total financial disaster, total arrows in the backs of the pioneers. We have a lot of things right now that I don’t know if this is how you get to 50% GDP per year, projects like this, but it’s possible that there’s a lot of absolute, amazing engineering successes that become total financial disasters. And just because it’s a success, and actually gets over the finish line it doesn’t guarantee that you’re going to have a good investment outcome. So, it is just something to think about.
Tobias: It is boring company public yet. Can we– [crosstalk]
Jake: Well, I wasn’t naming names.[laughter]
Jake: Criticize by category, Toby.
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