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A Nation of Small Shareholders: Marketing Wall Street after World War II

Author(s):Traflet, Janice M.
Reviewer(s):Doti, Lynne Pierson

Published by EH.Net (July 2013)
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Janice M. Traflet, A Nation of Small Shareholders: Marketing Wall Street after World War II. Baltimore: Johns Hopkins University Press, 2013. xi + 242 pp. $45 (hardcover), ISBN: 978-1-4214-0902-3.

Reviewed for EH.Net by Lynne Pierson Doti, School of Business and Economics, Chapman University

Don?t let the frivolous dust jacket fool you. While A Nation of Small Shareholders is very readable, it represents some very serious scholarship. Janice Traflet is a bona fide historian and an excellent writer. Moreover, as an associate professor in the School of Management at Bucknell University, she has a strong understanding about how a financial business operates. With this perspective, she has produced a unique history of how the New York Stock Exchange marketed equities to the consumer, especially in the 1950s and 1960s.

After World War II, the New York Stock Exchange (NYSE) and the average household had ambivalent attitudes about each other.? The NYSE watched covetously as consumer income rose and households invested heavily in bonds, life insurance and homes.? However, a JP Morgan partner Thomas Lamont represented the attitudes of many market experts when he blamed the 1929 crash on these investors of moderate means (as he put it, ?every Tom, Dick and Harry?) and hoped these people would not be in the market in the future. It was also true that the average household remembered the shadow of 1929 and preferred safer, more accessible and better marketed investments to shares of stock.

After the 1930s though, tightened regulations, particularly by the Securities and Exchange Commission (SEC), a reorganization of the NYSE board, and the rising number and reputation of companies listed on the NYSE made even average-income consumers feel that stocks could be a safe investment.? About that time, a few brokerage houses began marketing stocks to the ?small investor.? Those brokerage firms who were members of the NYSE were mildly encouraged to make these appeals ?as long as advertisements were truthful and in good taste? (p. 41).

Charles Merrill was a leader in marketing stocks and had a conservative reputation stemming from his 1928 warnings to clients to reduce their risk. In 1940, his brokerage firm began an advertising campaign directed toward potential clients with modest amounts of investment funds. The firm would become a leader in this type of marketing in the 1950s, not only advertising in print, but also offering investment seminars and information booths to educate their customers.

Some of the earlier Merrill ads explained how a stock exchange encouraged the operation of a free market. The NYSE discussed starting a similar campaign, but found the members would not financially support it. However, when G. Keith Funston became the new president of the NYSE in 1951, he made it clear that the board would be engaged in marketing. Serving the NYSE until 1967, he established the advertising theme as soon as he decorated his office with a picture of Independence Hall. Buying stocks listed on the NYSE was investing in America. He said the NYSE was the ?epitome of free enterprise? (p. 73). A few years later, Funston started a department to coordinate the marketing efforts of industry and trade associations, companies listed on the NYSE and institutions that invested in those companies. The NYSE?s own slogan became ?Own Your Share of American Business.? The campaign to make stock ownership synonymous with patriotism and anti-communism was soon prevalent in many advertisements. A rising stock market in 1953 and 1954 also helped boost stock ownership.

There was still a problem attracting investors with limited funds. Commissions were dependent on the size of the order. The NYSE and some brokerage firms developed a monthly investment plan (MIP) to allow customers to commit to paying a monthly sum for a set period. Rather than saving up for a ?round lot? of 100 shares, the customer would gain ownership of the shares as they paid for them. As the price of the stock fluctuated, each monthly payment earned more or less shares. This was a solid plan for investors who only wanted to buy stock in one or a few companies, but mutual funds offered greater portfolio diversification and experienced very strong growth in the 1950s. ?In 1940, less than 300,000 mutual fund accounts existed. By 1955, the number of mutual fund accounts had ballooned to more than two million? (p. 105). This was in spite of the fact that mutual funds were still not allowed to advertise (but did sell door-to-door!).

In the mid-1950s, the NYSE established a department for public education. The department coordinated free speakers and produced brochures for consumers. By the 1960s the exchange provided thousands of lectures a year in libraries, service clubs and other venues that would attract the smaller investments.

The NYSE would be substantially changed in the 1960s and 1970s. An increase in the importance of institutional trading of securities resulted from consumers investments in mutual funds, pension funds and life insurance. For the exchange, the focus turned from marketing to operating efficiency.

The 1980s saw the beginning of the long bull market and the end of fixed commissions. With the end of fixed commissions and the internet came e-trading by small investors. The story comes full circle, from overcoming consumer fear of the equity market in the post war period to the 2001-2002 declines in the market, which once again created fear among small investors.

The focus of this book is on the NYSE and its experiences attracting the average consumer into stock investment, in the post-war period. However, as such it adds an important piece to the literature on the history of the American equity market. Financial historians like Robert Sobel (The Big Board: A History of the New York Stock Market) or Charles Geisst (100 Years of Wall Street) will benefit greatly by this meticulous research. The book will also be interesting to general business historians and to marketing students, academics and business professionals.

Lynne Pierson Doti is the David and Sandra Stone Professor of Economics at the Argyros School of Business and Economics, Chapman University. She is currently working on a book on the history of real estate financing in California. ldoti@chapman.edu.

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Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII