Charles E. Merrill: the importance of an optimist

Published: Jul 2015
Bull statue

Charles E. Merrill was one of the first New York stockbrokers to appreciate the importance of selling stocks to smaller investors by providing sound financial advice. The tough reality of attempting to ‘bring Wall Street to Main Street’, however, meant he passed away before being witness to the remarkable effect his insight had on America.

Vital statistics:

Full name:
Charles Edward Merrill
19th October 1885, Florida
6th October 1956, New York

Some financial figures achieve recognition because of the age at which they start their achievements, whilst for others, it is the sheer size of their financial success (or deceit) that makes them famous. Merrill’s achievements warrant a place in this series of articles looking at figures who have shaped the financial world because of the enormous impact his radical thinking made.

He is responsible for taking the difficult first steps down the path of advocating the American stock market’s availability to the masses that endures today. Few other financiers have affected the lives of normal Americans to the same extent as Merrill.

Merrill’s adolescent years were quite different from the life he carved for himself, however. Having been forced to leave college two years into his studies due to a lack of funds, it was Merrill’s proactive approach to life and enduring optimism that led him to be known as the man who made America the shareholder nation – and himself, well, very wealthy.

His first financial coup

On the way to a Sunday-school picnic on 8th May 1898, 13-year old Charles spent all of his pocket money ($5) to buy a hundred copies of Times-Union and Citizen with the headline ‘Dewey tells story of his victory’. With the Spanish-American war raging, patriots willingly paid 25 cents each for the breaking news.

Finding his niche

However, it certainly wasn’t a straightforward path. In the years following his shortened education at Amherst College, Merrill tried his hand at numerous occupations – including selling advertising at a local newspaper and semi-professional baseball – before later finding his fit in the business world. Having spent the summer of 1907 playing baseball in Mississippi, Merrill’s popularity earned him a rail ticket to New York – paid for by the whole team.

At the time he arrived in late 1907, New York City still had more than 2,000 working farms in business. The tall buildings lining the bottom of Manhattan were only beginning to shape the city’s landscape and new industries were cropping up almost daily; armies of clerical workers were growing and Merrill took a position as an office boy in a textile firm.

But the ambitious individual’s sights were set higher. Influenced by his mother – who reportedly taught him ‘you can get anything in the world you want, as long as you want it bad enough’ – Merrill achieved a rapid promotion through the company, being a director by the time he left in 1909. Other employments that followed included: the creation and management of a bond department at a commercial paper company and his recruitment as a sales manager for Eastman, Dillon and Company, an established Wall Street firm, in 1913.

It was Merrill’s proactive approach to life and enduring optimism that led him to be known as the man who made America the shareholder nation – and himself, well, very wealthy.

Just a year later, in January 1914, Merrill decided to start his own investment banking firm – the company, initially founded as Charles E. Merrill and Co, was based in an office sublet from Eastman, Dillon and Company. By April of that year, Merrill was in a position to move the company into its own offices and after six months, Edmund Lynch joined the firm and it became Merrill Lynch and Company. Reports and recollections emphasise that the two made a great partnership: Lynch had a cold approach to figures that could turn Merrill’s aspirations into realistic achievements.

The pair initially earned Merrill Lynch its reputation through the successful underwriting of chain stores that grew large and profitable – the largest triumph being that of Safeway Stores. Merrill orchestrated the 1926 merger which gave way to the food chain giant, and his firm continued to provide investment banking services to Safeway. As part of his commission, Merrill took stock warrants, so, whilst building up the business value, he could also profit by selling his shares when their value rose. By the time of his death, he had amassed an impressive personal fortune. The income from Safeway securities alone was predicted to be at least $500,000 annually during the 1930s.

Devotion to education

Earlier unfortunate experiences with funding his own education meant Merrill felt empathy for those facing similar issues and he used his wealth to assist. In 1927, he donated $100,000 (now equivalent to circa $918,000) to his former college, Amherst, on the condition that it would be used to help financially disadvantaged students. His continued contributions helped fund numerous scholarships. Moreover, his vastly improved financial position also meant he could complete an honorary Doctor of Law degree himself at the school in 1943.

Foresight only appreciated in hindsight

But, ever focused on his business and the environment it operated in, Merrill never lost direction. In 1928, the market analyst became convinced that the stock market was overpriced and overextended; he believed speculation in the market had driven prices up to unreasonable levels. It was time for prudent investors to retrench. Merrill therefore was the first big name from Wall Street to predict the crash of 1929 – in the months prior, he had pleaded with President Calvin Coolidge to speak out against engaging in risky financial transactions to no avail.

As well as advising clients to reduce stock possession, Merrill, in February 1929, liquidated Merrill Lynch’s stock portfolio. During this time, there was no legal protection in place and the market had no securities laws – so when the crash finally came in October, this act made him famous across the country. Merrill had managed to protect himself and others from severe financial loss.

An extract from the letter Merrill sent to all customers (31st May 1928)

We think you should know that with few exceptions all of the large companies financed by us today have no funded debt. This situation is not the result of luck, but of carefully considered plans on the part of management and ourselves to place these companies in an impregnable position.

The advice we have given important corporations can be followed to advantage by all classes of investors. We do not urge that you sell securities indiscriminately, but we do advise in no uncertain terms that you take advantage of the present high prices and put your own financial house in order. We recommend that you sell enough securities to lighten your obligations.

His achievements are by no means limited to this one insight. After the crash, the American attitude towards the stock market had been soured; investors, having been encouraged to speculate so wildly, felt fleeced. Prevailing views of ‘buy low, sell high’ had backfired when everyone followed the herd and there was a lack of educated investments. But who would seek to tackle the disillusionment with Wall Street? Merrill took it upon himself to restore the country’s faith in the stock market.

Setting the precedent

Early on, he had positioned his view that the stock market should be an avenue a broad mass of Americans could be involved in, not just Wall Street insiders. In an article he wrote in 1911 for business journal Leslie’s Weekly, the forward-thinker proposed that stockbrokers needed to start paying more attention to their clients’ aims when recommending investment opportunities. “And so it has come to pass that a new guild has sprung up in the banking profession, whose members despite not the modest sums of the thrifty, men who give the same thoughtful and careful attention to the wise investment of $100, $1,000, $10,000 as to the funds of the opulent,” wrote Merrill.

The stock market, however, remained a daunting place for those with limited knowledge of investment procedures and most people – except Merrill – seemed keen for it to stay that way. It was some years before he could put these ideals into practice, but his earlier philosophy later guided his own company. Merrill aimed to make the stock market accessible to all; but as humans typically have the wrong instincts when it comes to the stock market, often lacking the discipline to resist impulses, how do you encourage wise investments?

“Demystification had been the key to my father’s great success,” explained James Merrill, Charles’s eldest son, in his memoir. “No more mumbo-jumbo from Harvard men in panelled rooms; let the stock market’s workings henceforth be intelligible even to the small investor.” The markets’ undeniable ability to create wealth, Merrill felt, should be available to all without the concern of being scorned. He promoted the value of stocks as a prudent long-term investment vehicle for all, aiming to clue-up individuals on the importance of developing a temperament opposite to that prevailing in the market – avoiding overpriced companies, for instance.

For that purpose, Merrill Lynch provided an abundance of educational tools. The firm published reports, magazines and pamphlets guiding would-be investors through the maze of the market – 11 million publications were created in 1955 alone. Merrill Lynch also gave seminars across the country, providing childcare where needed to ensure maximum turnout. The company did all it could to bring the common investor back to the market. Once, the company even gave away stock in a contest sponsored by a brand of cereal, Wheaties.

Moreover, Merrill also aimed to demystify the workings of his own firm, providing the public guarantee that it would conduct itself in a way that both met the demands and dispelled the fears of its clients in the company’s ‘Ten Commandments’, published in a 1949 annual report. Given that the first commandment was that the interests of the customer always come first, they may seem obvious now but, at the time, they were a revolution in terms of how larger firms treated their small clients. Indeed, commandments seven and eight were to do with disclosure of interest in offerings and advanced warning should the firm be selling securities.

Infectious confidence

By applying the notion of putting clients first, educating them about a sphere they may have been previously wary about, Merrill started one of the most profound financial trends. Only 16% of America’s households invested in 1945 but just over 50 years later, in 1998, nearly half had investments in the stock market – notably because of greater trust in the stock market.

Merrill promoted the value of stocks as a prudent long-term investment vehicle for all, aiming to clue-up individuals on the importance of developing a temperament opposite to that prevailing in the market – avoiding overpriced companies, for instance.

Small investors responded in droves to the newly available information – Merrill Lynch was soon positioned as the largest brokerage firm in the world. By the time of Charles E. Merrill’s death in 1956, the firm had 115 offices in the United States, more than 100 partners and 570 employees. It doesn’t logically follow, however, that just because Merrill Lynch was leading the way in best practice, that all of Wall Street was ready to follow. The firm’s innovations were limited on Wall Street. Merrill’s claim of a new day was just too early and he sadly died before he could witness the full effect of his efforts.

Nevertheless, the basic message Merrill Lynch preached resonates in the investment strategy many Americans follow today: educate yourself to ensure you have a clear understanding of the companies you are investing in. Investor confidence has followed the path Merrill set up by taking on the obligation of guiding well-informed investments and insisting respect for all. Merrill could be proud that the principles of responsibility and duty he stood for are now more prevalent in the country’s stock market.

Charles E. Merrill quotes

“If the supplying of capital to the nation’s industries and, for that matter, to the nation itself is a game, then the time has come to rewrite the dictionary.”

“Money, of course, is not everything, but, my friend, emergency after emergency comes up in this world of ours, in which for a few brief moments, at least, and maybe longer, money is the equivalent of everything.”

“I have no fear of failure, provided I use my heart and head, hands and feet – and work like hell.”

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