Clever Geek Handbook
3 April 2025

A Gift to My Children

Recommendation

This short bestseller by Jim Rogers, one of the world’s most renowned investors, is in the form of a letter offering personal guidance and investment advice to his two young daughters. Rogers co-founded the Quantum Fund with his partner, George Soros, and established a reputation as an authority on economics, investing and markets. In his 60s, he married for the second time and became a father. In this book – written in first person from “your father” with a slight, sweet undertone of talking down to the children’s level – he tells his daughters many anecdotes about his experiences to illustrate old-fashioned nuggets of fatherly guidance. He recommends saving money, cultivating good habits, working hard, studying and thinking about the future. BooksInShort suggests this book to anyone – including those two fortunate little girls – who would welcome a few paternal life-lessons, some good inside-business stories and a side dish of investment advice.

Take-Aways

  • Investment master Jim Rogers offers life lessons and financial counsel to his two daughters. His advice includes:
  • Think for yourself; listen to others, but make up your own mind.
  • Do work you love. Stay busy. Save your money. Do your homework.
  • Pay attention to details.
  • See the world – don’t just read about it.
  • Study the history of a place before you travel to it. Travel to it before you invest in it.
  • Study other languages, especially Mandarin Chinese.
  • Only invest in things you really understand. Don’t run with the herd.
  • Don’t rely on conventional wisdom or the media. Trust your research and observations.
  • Know yourself and learn from your mistakes.

Summary

The Back Story

Jim Rogers grew up in the little town of Demopolis, Alabama. At age six, in 1948, he started a peanut parching business. Thanks to a loan from his father, Rogers was able to invest $100 in a peanut parching machine, so that he could sell dried peanuts at Little League games. He worked hard and hired his friends. In five years, he repaid the loan from his father and had another $100 in the bank.

“Your father is an investor, a man who worked hard to learn all that he could to earn enough money to retire early, and, as a result, was able to do so at the age of 37.”

As a young man, Rogers worked in his uncle’s store, selling sandwiches and tobacco to workers from the nearby factory and stockyard. He worked so diligently that his uncle gave him a raise without Rogers requesting it. Later, he got a job with a construction contractor and always tried to stay busy. When Rogers lacked any immediate task, he would sweep. His work was so impressive that the contractor taught him skilled construction work, such as carpentry and roofing.

“If people around you try to discourage you from taking a certain course of action, or ridicule your ideas, take that as a positive sign.”

Rogers attended Yale on scholarship and then went to Oxford University, where he set his first Guinness record (in rowing). He eventually entered the field of money management. At age 30, he and his business partner, George Soros, co-founded the Quantum Fund. Rogers retired at age 37 and decided that now he could pursue his dreams. He traveled around the world on a 100,000-mile motorcycle trip and, again, on a 152,000-mile trip by car, earning two more Guinness records. He also lectured in finance, managed his own portfolio and remarried in his 60s after an unsuccessful earlier marriage. He and his wife now live in Singapore. Rogers wrote this book for their two young daughters.

Think for Yourself in Life and in Investing

Many people will try to tell you what you should do. Listen to them, but live your own life and make your own decisions. Very often, what people tell you is neither wise nor useful. Rogers learned this lesson by mistakenly trusting other people’s opinions instead of doing his homework and making up his own mind. He assumed that older, more prominent people probably had better ideas. He made some investments guided by those opinions and they did not perform well. So he decided to trust his own judgment. He found that people often scoff at unorthodox ideas. When Rogers was in his early 30s, he was invited to an important dinner with some big Wall Street investors. When they went around the table so each person could recommend a stock, he cited a struggling aerospace company, Lockheed. One investor sneered, but Lockheed – which was emerging from bad times – turned out to be a very good investment.

“Try as many things as you can, then pursue the one (or two, or three) about which you’re passionate.”

Conventional wisdom is often called common sense, but you can’t rely on it. When Rogers invested in Lockheed in the 1970s, most people weren’t buying defense stocks because the American government was cutting back on defense spending. Common sense said Lockheed was a bad investment. However, Rogers could see that the Vietnam War had sapped America’s military strength, which it would have to rebuild. And, indeed, the government reinvested in defense after the Arab-Israeli War broke out in 1973. Similarly, oil was cheap in 1970 – less than three dollars a barrel. Common sense said that low oil prices would continue, but Rogers did his own research and saw that demand was rising faster than supply. In 1971, he invested in oil – and he made a lot of money as oil prices shot up. In 1978, with oil prices high, many others started to invest in oil. Rogers kept on top of the details and sold his oil investments. Prices subsequently collapsed.

“While you need not concern yourself with conventional wisdom and other so-called established notions, you must respect and follow the rules, laws and ethical practices without which society cannot exist.”

In the 1980s, Rogers decided it was important to learn about China so he could decide whether to invest there, though some of his friends thought it was foolish. Rogers traveled throughout China by car, and observed that the people were entrepreneurial and hardworking. They saved, on average, “one-third of their annual income.” He felt they were beginning to shake off communism and to reach out to the modern business world, given the popularity of learning English or Japanese. Having done his own research, he was convinced that China would grow – and he was right.

“You should read the newspaper every day, but approach it – and all media, for that matter – with a healthy dose of skepticism.”

The 1990s technology stock bubble came about in large part because conventional wisdom accepted the notion of a New Economy. Something similar happened in Japan during the 1980s, when people thought the Japanese market could on go up. Then, after stagnating through the ‘90s, Japan’s economy started to do better. However, people had gotten so accustomed to the Japanese market being depressed that they could not accept the possibility of it improving. People who bought Japanese stocks by 2003 did very well because market values went up 100% afterward.

“Travel and see the world extensively. You will broaden your perspective many times over.”

In business, paying attention to the little things is always important; no detail is so small that you can afford to ignore it. For example, in the 1960s, an analyst told the board of General Motors that the company should prepare for competition from the Japanese. The analyst had been watching details that other investors ignored. The board brushed him off, but people who bought stock in Toyota did much better than people who bought stock in General Motors. Similarly, in the 1990s, many people bought Sears stock, but those who were really paying attention to the details were buying Wal-Mart instead. Sometimes the only way you can get the details is to go to the source. Roger’s motorcycle trips to such countries as Algeria brought him face to face with specific economic situations, and helped guide his decisions to invest – or not to invest.

“Difficult economic times often give birth to dangerous policies, and may again.”

Most people pay a lot of attention to bull markets, and not enough attention to the bearish side. Rogers always thinks of the bearish side. In 1998, when commodities were down, he launched the Rogers International Commodity Index. It quadrupled. In comparison, the S&P 500 went up 40%.

Pay Attention to the Rest of the World

Travel the world because that’s the only way you can really learn what is happening. Try new things and get off the beaten path. Don’t be a tourist and don’t fear people in other countries. Human beings are “basically the same” everywhere, no matter what they wear or what language they speak. When you travel, you learn about the world, but you also learn about yourself.

“To be a successful investor, you really need to understand psychology as well as history and philosophy.”

Nowadays, business is buzzing about Brazil, Russia, India and China. Based on his travels, Rogers thinks:

  • Brazil will become a better investment over the next decade and a half, in part because sugar is an important ingredient in ethanol and Brazil is a big exporter of sugar. However, Rogers is not excited about Brazil’s currency or stock market.
  • In 1990, Rogers rode his motorcycle through the Soviet Union, and it was clear to him that communism was collapsing. Indeed, the USSR fell apart only two years later. Russia today is fractious and deteriorating. The Russian mafia has too much power. Russia is not progressing like China, and Rogers isn’t investing there.
  • India is a mess. Its national highway is a potholed, traffic-clogged nightmare. Privatization has not made progress and India seems to take “one step backward for every step forward.” But if India can change, “it could be a great opportunity.”
  • China is an exciting place, and will become more and more important
“You must know yourself if you want to accomplish anything in life.”

Learn other languages so that you will be able to speak with people in other countries. Today, Mandarin Chinese is one of the most important languages in the world, since China will be the most dominant economic power in the next century. However, not every investment there will win, and progress will be interrupted. China eventually will have a “hard landing” because its economy is overheating, with overinvestment in some industries and inflation in real estate. When you read about China’s hard landing, prepare to invest – it will be an opportunity. In 1999, Rogers stopped buying stock in China, but he invested there again in 2005, 2006 and 2008. China’s booming economy also will cause a boom in commodity prices.

“Be extremely careful – even reluctant – before marrying.”

When you make your own investment decisions, look for markets where no one else thinks there are any opportunities. The more people avoid something, the better the opportunities are likely to be. The converse is also true – the more people think something is a sure thing, the less likely it is to be profitable. As an investor, never bet on the past. Follow the news and always ask yourself what current events mean for the future. For instance, recent events and societal signals indicate that women are going to become more powerful, especially in Asia. In part because there are so many more men than women in China and South Korea, girls will be able to call the tune. And, in the coming years, many countries may break apart. Iraq, for example, will probably split into several countries, with religion playing a big role in how its borders are drawn.

Learn History and Philosophy

Study history to learn how the world works, and how political events affect commodity and stock prices. Remember that winners write history, so read more than one version of events. The old saying that “history repeats itself” is true, at least when it comes to many economic events. The Internet revolution has a lot in common with previous revolutions, such as railroads and radio.

“I’m lucky to have your mother, who shares the same attitude toward personal finances.”

Study philosophy, but don’t get bogged down in “complex logic.” Philosophy focuses on paying careful attention to facts and then drawing your own conclusions. First, look at data. For example, bull stock markets and bull commodity markets alternate in cycles that last roughly one and a half to two and a half decades. The present bull market in commodities started in 1999, so it could “run until sometime between 2014 and 2022.” That thinking is based on observation or induction. Thinking based on logic, or deduction, is different. For example, Kellogg’s makes cereal, which takes grain. When the price of grain goes up, Kellogg’s makes less profit and its stock drops. This seesaw is one reason why bull markets don’t occur in stocks and commodities at the same time.

“Never act upon wishful thinking.”

Read the newspapers and pay attention to other media, but be skeptical. Much of what you read will be just conventional wisdom. Do your own research. As General George Patton said, “If everyone is thinking the same thing, someone is not thinking.” It is okay to stand apart from the crowd.

Advice about Work and Life

When Rogers learned that he really enjoyed investing, he pursued it as a career. He believes he wouldn’t have had the kind of success he has attained in any other field. He just doesn’t enjoy anything else as much. He feels that one of the worst things you can do is to grind away at a job you dislike. If you like to garden, cook or dance, think about opening a garden store, restaurant or dance studio. If you like your work, you will be happy, and that’s something money can’t buy. Also remember this advice:

  • Be truthful and ethical – Always obey the law. It’s the right thing to do and “honest people don’t get entangled in legal problems.”
  • Check the facts – Don’t let wishful thinking guide you.
  • Save your money – Even if your friends spend on high living, expensive clothes, impressive vacations and other indulgences, you should save. Before you spend money on anything, ask whether it’s worth the price. Rogers recalls his first wife, who was inclined to spend when he was inclined to save, and says that marriage didn’t go well. He praises his present wife, who shares his yen to save.
  • Know your strengths and your weak points – Everyone makes mistakes, but you should recognize your errors and learn from them.
  • Don’t be afraid of change – Welcome it. Investors who pay attention to change can do very well. Do not buy something just because the price is low. For the price to go up, some important change must happen that people recognize. If you are the first to see change coming, you can make big profits.
  • Make your own luck – The luckiest people tend to be the hardest working and the most informed. That’s another reason to always do your homework. Rogers once bought a diamond in the black market in Africa, only to find out later that it was glass. He didn’t know enough to tell the difference. He considers the experience a relatively cheap way to have learned to invest only in things that he thoroughly understands.

About the Author

Jim Rogers co-founded the Quantum Fund with George Soros. He wrote A Bull in China, Hot Commodities, Adventure Capitalist and Investment Biker. He has been a professor of finance at Columbia University’s business school and is a media commentator.

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A Gift to My Children

Book A Gift to My Children

A Father's Lessons for Life and Investing

Random House,
 


3 April 2025

It's Not What You Sell, It's What You Stand For

Recommendation

Advertising agency CEO Roy M. Spence Jr. boasts a client roster of prestigious organizations that promote a purpose as well as a product, including Walmart, the American Red Cross, Norwegian Cruise Line, the American Association of Retired Persons, the PGA Tour and Southwest Airlines. Spence and co-author Haley Rushing of the Purpose Institute explain how Spence’s agency targets, defines and presents each client’s core mission. Spence and Rushing sketch instructive case histories of for-profit and nonprofit organizations. They tell fascinating stories about world-class organizations, the importance of corporate purpose, and adventures in branding and marketing. BooksInShort recommends their perceptive methods to businesspeople who want their companies to have purpose and meaning as well as commercial success.

Take-Aways

  • Transform your business by prioritizing what you accomplish for other people over what you earn.
  • A “noble goal” helps define your organization to your employees, your customers and the world.
  • Your staff wants to work for an organization that makes a difference.
  • Purpose helps your company live up to its brand and promises.
  • Workers become more engaged if their organization seeks to improve the world.
  • Most organizations with purpose outpace their competitors.
  • Companies with purpose stay grounded in shaky markets and difficult times.
  • Such companies inspire their executives, employees, customers and shareholders.
  • Organizations without purpose lack focus and will.
  • Purpose drives successful organizations such as Southwest Airlines, Norwegian Cruise Line and the American Red Cross.

Summary

Progress with Purpose

The public prefers organizations with a purpose that transcends the profit motive. A company with a purpose meaningfully prioritizes its societal contributions though it still vigorously pursues profits. The rewards for being purpose-driven include dedicated employees, evangelical customers and iconic brands.

“Purpose isn’t everything, but it trumps everything else.”

The essential precept of this model of enlightened capitalism holds that companies should prosper because they improve the lives of their customers. This approach appeals to workers and consumers from the idealistic millennial generation as well as to aging baby boomers. For example, Southwest Airlines transformed air travel into something nearly everyone in America can afford. Walmart offers low prices, but purposefully. Its slogan promises people that they can pay less and live better. Johnson & Johnson’s medical products reduce pain and suffering.

The Benefits of Purpose

Each of these organizations has a clear mission or purpose that makes “a definitive statement about the difference it is trying to make in the world.” A “noble goal” helps define your organization. You, your business partners, your employees and your customers know what your company stands for, where it is going and why.

“We are on the brink of a new model of capitalism that makes money by improving lives.”

Your business and its activities follow a simple, rational construct. A company without an overarching purpose lacks focus and direction; it needs an overriding principle to help guide difficult decisions. You might earn profits, but your business suffers from a dearth of meaning and your employees struggle with an absence of inspiration.

“Frequently, mission statements do not provide a mission, let alone a purpose.”

Many businesspeople think that if they have a sound strategic plan, a solid operational structure and an effective marketing program, they don’t need anything else, including a special purpose. And it’s true that keeping your business essentials in order is the surest path to success. However, you will perform better if you have a defined purpose that inspires you to look beyond business results to the greater positive effects of success.

“Purpose turns employees into evangelists, which turns strangers into customers, and customers into fans.”

If you define your company in terms of its purposeful mission, you will make better decisions, your employees will be more enthusiastic and your customers will be more devoted. Your shareholders and your customers will come out ahead in the long run. Operating purposefully is based on these core principles:

  • “Purposes drive everything” – Purpose clarifies. In an age when other airlines are raking in enormous revenues from checked baggage fees, Southwest Airlines permits its passengers to check two bags for free. Southwest’s refusal to charge for checked bags has earned it enduring customer and brand loyalty. Nor will Southwest Airlines invest in anything that adds unnecessary costs to its bottom line because that would violate its creed, which is based on providing low-price, efficient service. Consumers recognize and respond to Southwest’s dedication to its purpose. When founder Herb Kelleher went into business, only 15% of Americans had traveled in airplanes. Today, that figure is 85%, thanks in part to Southwest Airlines for making air travel affordable.
  • “Purpose is a path to high performance” – When firms focus on a definite, worthy purpose, they leave their competitors behind. Sam Walton – founder of the retail chain Walmart – understood that rural people lacked access to retail merchandise and were tired of overpaying for the little they could find, so he created low-price stores in rural areas that were open 24 hours a day to accommodate his customers’ demanding work and family schedules.
  • “Purpose fosters visionary ideas and meaningful innovation” – The people at Pampers decided early on that they wanted to do more than keep infants’ bottoms dry. Their vision included improving child health and helping mothers create the best possible lives for their babies. Pampers accomplished this goal via different paths, including a partnership with UNICEF and research into how much sleep a healthy baby needs. Its outreach programs enabled Pampers to become the first Procter & Gamble product to become an “$8 billion brand.”
  • “Purpose moves mountains” – When Bob Lanier became chairman of the Texas Highway Commission in 1982, he faced a daunting task. Texas’s roadside litter was growing 17% a year. Lanier recruited author Roy M. Spence Jr.’s ad agency to develop a message to dissuade Texans from littering. The slogan “Don’t Mess with Texas” resonates with Texans’ pride in their state. This witty wordsmithery worked so well that litter on highways in Texas decreased by 70% during the following five years.
  • “Purpose will hold you steady in a turbulent marketplace” – Market changes force executives to adapt and readapt their strategies and tactics. But a defining purpose gives your company a reliable road map to follow without having to react to every competitive blip. A purpose enables your company to view every market development through the filter of its core values.
  • “Purpose injects your brand with a healthy dose of reality” – Consumers quickly abandon products and services that do not live up to their branding. In Texas, the locals reserve a saying for people or companies who exaggerate their capabilities or do not deliver on their promises: “That cowboy is all hat and no cattle.” Companies with purpose don’t have to worry about misperceptions or empty promises. Their purpose – not their advertising – drives their activities and keeps them grounded.
  • “Purpose recruits passionate people” – Employees want their work to be inspirational and meaningful. Purposeful organizations have no trouble finding and hiring passionate applicants who believe in the company. For example, Healthways develops enlightened health care plans for consumers and is one of the fastest-growing companies in the US. Its purpose: “Creating a healthier world, one person at a time.”
  • “Purpose brings energy and vitality to the work at hand” – Studying corporate America, Gallup identified the main attributes of engaged, enthusiastic employees. One of the most important is a worker’s “sense of belonging”: Staffers are more motivated if the purpose of their company makes them feel their job is important. If you give your employees a purpose they can believe in, they will be excited about coming to work every day.
  • “Purpose contributes to a life well lived” – Today’s employees need to spend their time doing work they find significant and vital. This is particularly true for young people who are not inclined to trade their workweek for a paycheck; they want their efforts to contribute to a larger purpose.

“Find the Thrill”

Companies with a purpose make a difference in ways their competitors cannot match. Such missions emerge from enlightened visions that excite the firms’ founders, employees, customers and shareholders. For example, the purpose for Charles Schwab’s eponymous firm is to take the mystery out of investing so anyone can participate in the stock market.

“Purpose drives an entire organization and it answers why the brand exists.” (Jim Stengel, former global marketing officer, Procter & Gamble)

To find that necessary thrill, ask your most devoted employees what excites them about their work. Search for under-the-radar market opportunities that your competitors overlook. Identify important causes that need a champion. Seek to discover where you can do the most good. Find consumers your competitors don’t target, and determine what they will find compelling that you alone can deliver. Whichever road you travel, understand that all paths originate at the same point: the customer.

“Have the Will”

Besides a thrilling goal, you need the will to make things happen. You and your colleagues must discuss how you can turn your vision and purpose into reality. First, make sure that your operations align with your visionary goal. Reduce your risks by conducting a “purpose audit” to determine which of your organization’s practices might keep it from attaining its purpose. Develop your infrastructure to support – and never interfere with – that purpose.

“Ignite the Passion”

Be passionate about your purpose, and spread that passion throughout your organization. When your customers perceive your purpose and the value of your offering, they will become evangelists for your brand. Conversely, their excitement will further inspire the fervor of your employees, creating a positive reinforcement loop. Always set a high bar for your purpose.

Mission-Driven Organizations

Respected, mission-driven organizations that benefit from working with a purpose include the following:

  • Walmart – Sam Walton built his empire on a slogan that defined its purpose: “Everyday low prices on the brands you can trust. Always.” This told consumers that Walmart did not sell second-rate brands, and that low prices were a constant. Purpose is now Walmart’s fourth P, joining the firm’s traditional 3Ps: “products, pricing and people.” Because of its buying power, Walmart reduced the price of many generic drugs to $4. This helps elderly people on fixed incomes who rely on medication.
  • Norwegian Cruise Line – This popular cruise line features “freestyle cruising,” which gives passengers flexibility to eat when and where they want, to wear whatever they choose and to follow their own schedules during their cruise holidays. This “go your own way” philosophy – and purpose – differentiates NCL from most cruise lines that assign dining room seats to their passengers, insist on dress code and otherwise make passengers conform to what is most convenient for the cruise line. NCL posts only these messages for their passengers: “Dinner will be served promptly at whatever o’clock”; “You must board. You must disembark. Thus ends the list of ‘musts’”; and “Our dress code: Wear something.”
  • The American Association of Retired Persons – AARP champions senior citizens, constantly working behind the scenes on their causes and lobbying in Washington on their behalf. This mammoth organization – 35 million strong – strives to improve the lives of its members and supplies them with discounts on a range of items. These services prove the truth of AARP’s slogan and purpose: “The power to make it better.”
  • The American Red Cross – This famed nonprofit organization offers many services, including disaster relief, safety and health education. It helps men and women in the military, gives assistance to people in trouble around the globe, and maintains an adequate blood supply for Americans. The purpose of the American Red Cross is “Empowering people in America to perform extraordinary acts in the face of emergency situations.”
  • The American Council on Education – This nonprofit promotes US higher education, including Ivy League colleges, community colleges, state universities and other secondary education institutions. With the US slipping backward in education – America now ranks 16th among member nations of the Organization for Economic Development and Cooperation in students graduating from high school, and 12th in students completing college – ACE has a monumental purpose: “Transforming lives for the betterment of society. One discovery, one student at a time.”
  • The PGA Tour – The Professional Golf Association Tour, with its strict code of conduct and its dedication to sportsmanship, remains as admirable today as it was decades ago. The PGA Tour’s purpose is to be the exception in sports, and any behavior that might put the integrity of the game into question meets with severe scrutiny. People respond to the PGA’s purpose with passion. One volunteer, Phyllis Wade, has worked at PGA tournaments for 60 years.

About the Authors

Roy M. Spence Jr. is chairman and CEO of GSD&M Idea City, a marketing communications and advertising company that has helped grow some of the world’s most successful brands. Texas Monthly named him “Adman of the Century.” Haley Rushing co-founded the Purpose Institute along with Roy Spence. The Purpose Institute is an organization dedicated exclusively to helping clients discover and articulate their purpose and values.

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It's Not What You Sell, It's What You Stand For

Book It's Not What You Sell, It's What You Stand For

Why Every Extraordinary Business Is Driven by Purpose

Portfolio,
 


3 April 2025

Wall Street to Main Street

Recommendation

Charles Merrill is an authentic American genius and today’s capital markets bear his distinctive stamp in many ways, as Edwin J. Perkins’ book proves in fascinating detail. While the book works as a business history and as a professional portrait, it is less successful as a biography because Perkins deliberately chose to focus on Merrill’s professional life. By keeping Merrill’s personal life very much in the background, Perkins declines to bring Merrill’s personality to life. We learn about his career, but we do not seem to get to know the man himself. Happily, Merrill’s achievements and business innovations are well worth examining. His commitment to service, integrity and the good of the common customer - even when that angered the elite customer - made him richer than most of the aristocrats who fought against him. BooksInShort recommends this worthy portrayal of a riveting role model to entrepreneurs, finance professionals and any business history buff.

Take-Aways

  • Charles Merrill was America’s greatest financial entrepreneur and innovator.
  • Merrill’s principles of honesty, integrity, service and putting the customer first revolutionized the brokerage industry.
  • Merrill succeeded in brokerage in part because of his mass-marketing experience from running the Safeway grocery chain.
  • Merrill secured his reputation by predicting the 1929 market crash.
  • Merrill correctly foresaw the post-war economic boom when many forecasters predicted a slump.
  • Merrill Lynch’s innovative compensation and fee system helped restore post-war investor confidence.
  • Merrill was one of the few on Wall Street to recognize that market reforms would help restore trust in the securities industry.
  • Merrill forbade his firm to offer mutual funds-a great miscalculation.
  • The entire brokerage industry today reflects Merrill’s vision and innovations.

Summary

In October 1939, just after the outbreak of World War II, semi-retired entrepreneur Charles Merrill agreed to rejoin his sleepy brokerage firm, Merrill Lynch & Company, on a full time basis. Charlie Merrill had once been one of Wall Street’s leading lights. He’d predicted the 1929 stock market crash and saved his clients millions of dollars in the process. He had then accumulated a vast personal fortune through the Safeway grocery chain. At 54, newly married for the third time to a beautiful young woman, seemingly content in his leisure, Merrill chose to take on the greatest challenge of his career. By the time of his death 17 years later, he had emerged as the most influential and innovative financial entrepreneur America has ever produced.

“Perhaps as much as the establishment of the SEC, the new ways of doing business at Merrill Lynch transformed public opinion and restored public confidence in the integrity of the securities markets.”

Charles Merrill was born in Florida in 1885, the eldest child and only son of a professional family. His father was a doctor and owned a drugstore. Charlie helped out in the store and showed a flair for figures and store management. He also learned how storeowners typically ran their businesses. He attended Amherst College for two years, where he found that his middle-class background and southern roots set him apart from the old-money aristocracy in the northern United States. He never lost his sense of identification with the middle class.

“Charles Merrill had been prescient about an economic downturn in the late 1920s, and he was prescient again about the continuation of the economic expansion after 1945.”

At Amherst, he was an adequate but undistinguished student with a flair for writing. After his family suffered a financial setback, he returned to Florida in 1906 and worked as a journalist for a summer. When he returned to school, he selected the University of Michigan, where he intended to study law and make enough money to help support his family. But he did poorly during his year at Michigan and never did finish his college degree.

“The willingness to adopt unorthodox and untraditional promotional techniques was one of the hallmarks of Charles Merrill’s career on Wall Street.”

In 1907, Merrill became engaged to his Amherst sweetheart and went to work for her father in New York City. Robert Sjostram, a textile manufacturer, owned six mills in the area. Charlie began as an office boy and quickly worked his way up. During his early days in New York, he met his future partner, Edward Lynch. They had very different personalities; Merrill was gracious and gregarious; Lynch was more blunt and aggressive. Still, they became fast friends and Merrill moved in with Lynch. Soon he was making $100 a week - the equivalent of around $100,000 annually in contemporary terms - and was able to pay off his parents’ mortgage.

“The democratization of the stock market, originally fostered by Charles Merrill, has been inexorably expanding to new locales, drawing in new investors ranging in economic status from the middle class to the super rich.”

In 1909, his fiancŽe broke their engagement and Charlie went back to Michigan for the summer session. At the end of the summer, he returned to New York and soon accepted a job with George Burr, a stockbroker who had decided to diversify his company by offering corporate bonds. Merrill was put to work selling bonds. He decided to go against Wall Street tradition and advertise the bonds.

“Because of his many contributions, Charlie Merrill deserves recognition as the nation’s premier entrepreneur in the thriving financial services sector.”

He was already committed to the principles that would mark his later career. In 1911, he wrote a magazine article about the importance of knowing a customer’s financial circumstances before starting an investment program for him and the merit of tailoring the investment to the client.

In 1912, Charlie learned that the bonds he had been selling for Burr were worthless. The company was insolvent, and Burr had essentially bailed out his own company at his customers’ expense. Furious, he soon left Burr and privately vowed to create a company with colleagues he could trust. While he worked for Burr, Charlie had his first encounter with chain stores and their suppliers. He quickly recognized their vast potential.

“Merrill’s influence equaled the impact of all previous American financiers, including his only legitimate rival, J. P. Morgan.”

He married Elizabeth Church, who would be the mother of his first two children. As a newlywed in 1912, he took a job at the firm of Eastman Dillon. However, his innovative approaches were unwelcome and he clashed with the firm’s owner. In 1913, he proposed a kind of housekeeping deal; he would operate independently on the premises of Eastman Dillon, with his own company, office and staff, but would trade securities through Eastman Dillon, thereby generating commissions for them.

The Birth of Merrill, Lynch

Charles E. Merrill & Company was launched on January 6, 1914. The new firm made steady progress. Edward Lynch came in as a partner early on and the firm thrived by doing what would now be called merchant banking - buying blocks of stock that were also sold to retail customers. Merrill, Lynch earned large profits and the partners worked hard to overcome the unsavory reputation stockbrokers had in those days. At a time when most reputable firms focused on helping wealthy people maintain their fortunes, Merrill, Lynch was dedicated to helping middle and upper-middle class customers increase their wealth over time. They aimed to serve every type of investor with every degree of risk tolerance.

“Charlie kept learning about successful business practices throughout his life, and the lessons kept paying off.”

Merrill volunteered to serve in World War I, eventually becoming a trainer in the Army Air Corps. After the war, he invested heavily in three key growth sectors: automobiles, motion pictures and chain grocers. His automobile and motion picture choices were not terrifically successful, but he acquired vast wealth in chain groceries. In the ’20s, Merrill, Lynch became the leading financier for chain stores. Merrill was divorced in 1924, when divorces were considered somewhat scandalous among the Wall Street crowd. He was soon remarried to Hellen Ingram, a former journalist.

“Merrill had a vision of the future that his contemporaries on Wall Street generally lacked.”

By 1928, Merrill foresaw a major economic downturn and began to order his associates, including Ed Lynch, to retrench positions accordingly. He warned his clients to retire their debts. He pursued this defensive policy into 1929, even as the market soared to new heights. His associates and partners, including Lynch, infuriated him by dragging their feet in executing his orders. When the crash came, Merrill, Lynch clients saved millions because of Merrill’s advice and the firm survived intact. Even when the market seemed to rally, Merrill stayed bearish. Just as he predicted, the Dow sagged again, losing 85% of its value by 1932.

Chains and Change

Merrill’s reputation was secure but he was so disgusted by his partners’ foot-dragging that in the 1930’s he all but left the brokerage business to focus on running the Safeway grocery chain. At the time some states, including California, were trying to tax chain stores out of existence to protect local independent stores. Charlie led the fight to defeat the chain-store tax. His success in helping keep food prices down was one of his proudest accomplishments.

“Prior to Merrill Lynch’s ascendancy in the 1940s, the provision of routine brokerage services had never been a pathway to leadership in the elitist world of high finance.”

His Safeway experience taught him many new business techniques that he would later apply to brokerage. Traditionally, grocery stores had been run like his father’s drugstore, extending credit, writing off many bad loans and keeping rigidly high margins to maintain profits. Chain stores worked on a cash-only basis, kept low margin and made money on volume. They even attracted customers by selling some products at or below cost as ’loss leaders.’

“Charlie envisioned the sales staff as a group of trusted advisors to valued clients.”

In the mid 1930’s, Charles took up with Kinta Des Mare, a beautiful young woman from New Orleans who would become his third wife. By the time he married her a few years later, he was living a life of leisure. Ed Lynch died suddenly in 1938. Intensely loyal to Lynch, Charlie insisted his name remain on the firm’s shingle, though New York state law said no dead man could have his name on a partnership. The solution was to rename the firm "Merrill Lynch," without a comma.

Wall Street Innovator

Merrill was one of the few Wall Streeters to support Franklin Roosevelt’s New Deal reforms of the financial markets. Traditionally, those who ran brokerages structured the rules to protect their interests, not the customers’ interests. Merrill saw that by putting customers first, the industry could create a vast pool of investors and all firms would benefit. He even sought an end to guaranteed minimum commissions on stock trades, but the New York Stock Exchange leadership fought him. While many brokers howled that reforms were socialist or Marxist, or proclaimed that the old system was perfect, Charlie saw that transparency - the flow of good information to the public - and reforms leading to honest business practices could only help the securities industry recapture public confidence.

“For Charlie, business and pleasure overlapped and often were indistinguishable.”

When he returned to the helm of Merrill Lynch in 1954, Charlie brought his Safeway mass-marketing experiences to bear on the brokerage business. Merging with two other chains, Merrill Lynch put offices in many cities. The firm dropped the commission system and put their brokers on salary. That removed any incentive - and just as important, the appearance of any incentive - for brokers to "churn" accounts or prompt trades just to generate commissions. Merrill Lynch became the first brokerage to publish financial reports, even when they were not required. The firm eliminated fees for accounts, and established a research department that offered information free to people who would agree to answer a questionnaire about their finances and goals. One now-legendary newspaper ad consisted of a beginner’s guide to investing printed in small type. Some in the firm questioned the ad, but it was a hit with potential clients.

“Charlie’s entrepreneurial creation ranked number one in more of the leading money centers around the world in the 1990s than any other competitive enterprise.”

These efforts generated goodwill and leads that more than repaid their expense. Merrill correctly predicted a post-war economic boom and positioned his firm to take advantage of it, though other analysts expected a recession like the one that had followed World War I. As trust in the brokerage industry grew, so did trading volume. When the 20-year depression in the brokerage business ended in the early 1950s. Merrill Lynch was the greatest beneficiary.

Professional Success, Personal Decline

Merrill, a longtime smoker and social drinker, suffered two heart attacks in the mid-1940s. For almost a decade thereafter, he was unable to come to his office. He was plagued by angina and his activities were sorely limited, including sexual activity. In 1952, he was divorced for the third time. A colleague named Winthrop Smith served as his surrogate in the main office, and Merrill became mostly a strategic thinker for Merrill Lynch. The firm started a training program for new brokers and became the first brokerage to stick with it, even in bad times.

In 1953, Charlie took an experimental radioactive-iodine treatment that cured his angina attacks, and he was able to return to the office. By then, the firm had 108 retail offices across the country and accounted for almost 12% of the trading volume on the NYSE. The firm continued to expand into other areas, including commodities, always with the goal of offering investors the greatest range of services. In 1954, the firm created the Monthly Investment Plan. This compromise between Merrill Lynch and other firms allowed investors to sign up for small, regular monthly transactions. These odd-lot trades could lose money for the firm, but Charlie recognized that they would serve as loss leaders, and bring in clients who would become profitable over time.

Merrill Lynch also became the first firm to pay interest on cash balances. This lured in extra cash, which made the firm even more profitable. The one area where Merrill miscalculated was mutual funds. He refused to get involved with them, in part because of bad experiences with old-fashioned ’closed-end’ mutual funds in the 1920s. He also felt that mutual funds would ruin the brokerage business, since mutual fund investors tend to buy and hold for long periods of time.

Merrill died of kidney failure in 1956. Since his death, Merrill Lynch has continued to innovate. Though brokers now receive commissions and some fees have been re-established, Merrill’s philosophy of service and putting the customer first still reigns. Now the firm is well established overseas. As a result of his achievements in his three careers, and the transforming power of his vision of the brokerage industry, Merrill stands as the most important and influential financial entrepreneur the United States has ever produced.

About the Author

Edwin J. Perkins  is professor emeritus of history at the University of Southern California. He is an expert on the history of American financial services and has written five books, including a history of the New York banking firm, Brown Brothers Harriman. He has testified before the U.S. Congress about proposed reforms of outdated banking laws.

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Wall Street to Main Street

Book Wall Street to Main Street

Charles Merrill and Middle-Class Investors

Cambridge UP,
 



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