Financial markets are full of surprises, letting some get enormously rich while others (who are in the majority, unfortunately) lose all their capital. But being patient and striving to perfect their skills many of those who lost in the very beginning still have their chance to become lucky millionaires someday. On the other hand, those who got rich in the beginning thus becoming all too confident and stubbornly righteous may someday turn into complete failures complaining about the injustice of financial markets. The stories of those failures are dull and monotonous and you can read them on any forum dedicated to trading, while the stories of those who succeeded, fell from the top, and climbed again without losing their confidence are inspiring.
Earning a lot of money dealing in volatility arbitrage is not rocket science. To keep one’s earnings augmenting the capital is a more tricky business. Many great traders and financiers became famous only after they managed to find their way into trading after a series of failures.
Jesse Livermore is an example of such a trader. He was a genius of trading who made millions only to lose them and to make them again. The press nicknamed him the Great Bear of Wall Street as his trading had its impact on the market, while the lad even had no secondary education!
His trading career began at the age of 14 when he, a son of a simple farmer, mastered a three-year course of math just in a year. Having done so he decided to look for any other trade except farming and left his home. His initial capital amounted to $5 and the clothes he had on. He ran off to come to Boston. The stagecoach he rode stopped in front of a bookmaker’s office. This coincidence gave birth to a great career in trading.
The year was 1891 and the bookmaker’s office hired him to write down on the board the quotes cabled from the stock exchange. The office profited from the bets for price changes. The office gained from the losses of the betters. Having a mathematical mind and good memory Jesse noticed the repeating figures and started to record them. Grasping certain regularity in the repetitions Jesse understood that he can forecast changes in the figures sometimes. His first winning bet amounted to $3. As he improved his skills, he soon managed to become more accurate in his forecasts, achieving great excellence. His abilities made his colleagues call him Boy Plunger and Wonder Boy.
Having earned his first capital, he repaid $5 to his mother adding $300 for her help in his escape. Soon he became popular all over the city and in a month his bets became banned in every betting office in the city, as he rarely lost in betting. This was unbearable, as bookmakers make their revenue from losing betters. Betting on shares Jesse managed to improve his mathematical skills and to develop his own method of forecasting which was based on technical analysis. As Boston grew too small for him, Jesse went to New York to earn more money on the real stock exchange.
He came to New York having $2000 in his pocket. He became a stock trader having no idea of real stock trading. With no skills in long-term forecasting he managed to earn his first $50 000 by 1906 only to lose the amount for trading on a stock exchange is very different from betting with bookmakers. Bad luck did not break him down. He understood his mistakes and took measures to prepare himself for the next try. He returned to his first employer and started studying new analysis and forecasting methods to discover news analysis. His inborn abilities, good judgment, and persistence helped him develop a new strategy within a very short time. He turned back to trading during that same year to recover his losses and to earn much more. His success did not go unnoticed on the stock exchange where he was nicknamed a “Millionaire for a day”.
It didn’t take much time for the nickname to be justified. Jesse preferred bear-style trading often running down the prices for many assets. In 1907 his professional trading operations caused a crisis on the stock exchange when his bear-style trading made the whole US stock market collapse. The owners of the New York Stock Exchange even had to ask him to suspend his trading operations for the stock market to recover. The collapse of the national stock market made Jesse a real millionaire.
During the twenties, he was the most influential and wealthy trader with an office of his own staffed with six clerks writing the quotes down for him on a large board in absolute silence. He began living on a grand scale, buying expensive cars and yachts and making expensive gifts to his wife and mistresses. He also became a celebrity with the press. He lost his fortune four times and each time he earned even more, getting back triumphantly and repaying all his debts and losses. His career peaked in 1929 when he made a tremendous fortune at the start of the Great Depression by predicting market disruption. Because of this, he was declared to be the principal party guilty of the crisis. It was the year when many traders and brokers committed suicide because they went broke, while Jesse could live as if nothing happened.
In the beginning of the thirties, Jesse’s career came to an end. He put his entire capital at stake and lost. This time he failed to recover and being prone to depression he locked himself in a hotel room and committed suicide. Having outstanding analytical skills, Jesse Livermore was a great trader, but his risky temperament and ineffective capital management took him off the top more than often. Should he spend a fraction of his analytical skills to control the risks, he could hold Wall Street at bay much longer with his bear-style trading.
Charles Merrill was a quite different type of successful financier. He wanted to earn money, but he also wanted to open stock markets to anybody who wished to trade. Despite his extraordinary abilities Charles Merrill sometimes felt the need for a piece of advice.
Once he confessed to his doctor that he felt like a madman trying to convince people of the coming market disruption, as nobody believed him. All the people see is the growing market and they think it will continue growing for long. The doctor reassured him by saying that if he thinks himself mad, then the doctor is madder still for he did as Charles told him to do, i.e. sold all his shares.
The conversation took place in the end of 1928 in the office of a New York psychiatrist who was a customer of Merrill Lynch Investment Company. The psychiatrist’s patient was none other than Charles Merrill, one of the co-owners of the Company, a successful stock trader and financier.
He began to doubt his mental health after he became almost the only one who failed to share the excitement about the rapid economic upturn in the USA. At the start of that year, he advised his customers and friends to sell the shares at their then-current overestimated price. The unprecedented growth of the market caused by the traders going bull was too risky and prone to abrupt disruption. The majority of his customers failed to follow the advice, so he made another attempt to warn his countrymen of the coming danger by making recourse to the words of President Coolidge, greater authority for the Americans. He offered a retiring President to become a partner to the company should the President warn the Americans by a broad statement. But the President refused the offer, accusing Merrill of being unreasonably pessimistic. All this made Charles Merrill turn to his psychiatrist.
Reassured by the doctor, Merrill stopped his attempts to warn the investors of the future collapse, hastening to sell the stock he owned and leaving only the chain stores and some other companies in his portfolio. Having safely survived the market crash in October 1929 Charles Merrill retired temporarily as the onset of the Great Depression made the stock market practically inoperable. Selling his stock at the right time he had enough means to survive the Depression safely. After skillfully expanding Safeway Stores, which his company owned, Charles Merrill steered it to become the third-largest national retailer during the Great Depression. Following the prolonged crisis, he made a triumphant return to the stock exchange.
Young Charlie helped his father, a rural doctor and the owner of a drugstore, to sell drugs. He was tasked with preparing and selling milkshakes. Soon his father noticed the growing popularity of his son’s produce. It turned out that the secret was quite simple, as Charlie added spirits to his milkshakes. Charles Morton Merrill, Charlie’s father, was a wise man and instead of punishing his son, he made use of his recipe by selling “spirited” milkshakes at a higher price. Having noticed a talent in his son Merrill Senior sent him to college. Due to the lack of money, the Merrill family moved around a lot. This resulted in Charlie changing many schools and seeing many different people, gaining a lot of experience in life.
Back in his native town, Charles graduates from college and enters law school at Michigan University. As Charles lacked the money to pay for his education, he failed to get it in full. But during his term at the university, he managed to engage a coed whose father owned Patchogue-Plymouth Mills, a small textile facility in New York. Soon he started working for his future father-in-law. The latter employed the potential son-in-law as a courier, but as soon as Charles began working there came the crisis of 1907, and the company went almost bankrupt. They needed money to save the company, but credit was hardly available at that time.
To avoid potential embarrassment and rejection, the company owner delegated the task of securing credit funds to Charles. Charles, leveraging his adept negotiation skills honed through frequent family relocations, proved to be a capable negotiator. Surprisingly, he not only secured a meeting with the President of the National Copper Bank but also managed to secure a credit of three hundred thousand dollars. Charles' success came as a complete surprise to his future father-in-law, who rewarded him with a promotion in recognition of his accomplishment. Two years later, Charles had gained such a strong reputation that the textile company owner considered him a potential partner. However, Charles ended his engagement with the owner's daughter and moved on to work on Wall Street.
After moving to New York Charles met Edmund Lynch with whom he shared a room at the YMCA hostel. At that time Edmund busied himself selling soda water fountains. They quickly became close due to shared dissatisfaction with their routine jobs and low incomes. The young men started discussing plans for a possible joint future. While still working at the textile facility Charles got interested in the stock market which was at its prime at the time. On seeing the amount in circulation on the stock exchange Charles began to study the market more closely. It was the time when no special permissions were required to become a broker therefore Charles learns the trade very quickly only to leave the company and get employed as a broker with George H. Burr & Company.
Within two years, he transforms into a successful professional, positioning himself to lead the company's bonds department. However, Charles was dissatisfied with the company's approach; it seemed indifferent to its customers' success. The company derived its earnings from commission fees, encouraging numerous transactions irrespective of their outcomes. Charles, driven by a vision to enhance performance, proposed reforms to the top management. Unfortunately, his ideas were rejected, prompting Charles to make a bold decision — he opted to establish his own company to implement the envisioned changes.
Charles E. Merrill & Co. was established on January 6, 1914. As broker companies usually dealt with major investors, it was no easy task for a new player on the market to find willing customers. But it didn’t discourage Charles Merrill. In 1912, while employed by George H. Burr & Company, he was responsible for the IPO of the major retail chain owned by Sebastian Kresge. The successful IPO brought experience and reputation to the young broker while letting him look at broking from a different angle. The new look resulted from the in-depth study of retail chain operations which made Charles think that retailing can be useful not only in goods trading. It can also find its way to trading stock through a chain of broker companies.
Market studies and computations revealed to Charles that the total capital owned by the middle class will exceed the total capital owned by the rich if attracted to the stock market. The idea got such a tight hold of him that he made it his mission to implement it in practice. To start with, he decided to succeed and earn some capital. He used his reputation and connections he established during his work with Kresge. He busied himself with the placement of shares of chain companies. As he was short of employees he invited Edmund Lynch, an old friend of his who had extraordinary analytical skills. So in 1915, his company was renamed to become Merrill, Lynch & Co.
After securing substantial brokerage fees and initial capital from the placement of J.G. McCrory Co. shares, the partners began acquiring shares of smaller chain and grocery stores available at affordable prices. Charles Merrill, recognizing the potential of chain stores, especially during his involvement in placing Kmart shares on the market, understood that these establishments offered consumers the convenience of purchasing everything they needed in one place.
The company's capital grew steadily as the prices of retailer shares rose. Charles, being a shareholder, actively participated in managing these retailers, striving to enhance their operational efficiency. In 1926, his efforts culminated in gaining control over Safeway Stores, a major chain. Through a strategic merger with smaller retailers owned by Merrill Lynch & Co at the time, the partners successfully boosted the company's capitalization and the value of its shares. Despite the onset of the Great Depression shortly afterward, Charles Merrill and his company retained a substantial capital position.
During the Depression, Charles Merrill handed a share of his capital and the remaining customers of the company over to E.A. Pierce & Co. while busying himself with the management of Safeway Stores. Having considerable means resulting from the sale of shares and a considerable income from his retail chain Charlie survived the crisis painlessly and acquired worthy experience in the retail business.
After the conclusion of the Great Depression, Charles revisited his vision of involving the middle class in the stock market. To expedite this without starting from scratch, he orchestrated a merger between Merrill Lynch and A. Pierce in 1940, personally investing $2.5 million and obtaining a 56% stake in the new company. Charles then standardized his employees' salaries, decoupling them from customer fees. This strategic move allowed his staff to focus on analyzing stock offers for customers, prioritizing positive outcomes.
Post-Great Depression, there was a surge in efforts by brokers to attract new customers, given the growing indifference of ordinary Americans toward the stock market. Charles, however, took a unique approach to garner nationwide attention. To achieve this, he highlighted the secretive and opaque nature of Wall Street practices prevalent at the time. Merrill Lynch, E.A. Pierce & Cassatt became the first company to publish both its profit and loss reports for the previous year. The bombshell revelation of a $308 thousand loss in 1940 garnered widespread media coverage, inadvertently advertising Charles Merrill's company for free. This move proved effective, instilling confidence among customers, and by 1944, the company handled 10% of securities traded on the NYSE.
Charles didn't stop there. In 1944, he initiated an aggressive advertising campaign focused on enhancing the financial literacy of the average citizen rather than promoting his brand. Merrill Lynch pioneered free seminars for ordinary Americans, introducing a family pair approach by providing babysitters for attendees without childcare options. Charles emphasized the importance of having both family members present at the seminar to avoid hearing "I need to discuss the issue with my wife" later. This unique advertising strategy paid off, and by 1950, the company boasted 106 offices nationwide with a customer base of 104 800.
Taking advantage of the onset of the Cold War, the resourceful financier also reaped benefits as purchasing shares from national companies became regarded as a patriotic undertaking. The operational prowess of the 106-strong chain of "stock supermarkets" propelled Merrill Lynch to unparalleled fame, making it the most renowned investment company in America and beyond. The New York Stock Exchange's commitment to materializing the concept of democratic capitalism played a pivotal role in the company's ascent to fame. In January 1954, the Monthly Investment Plan program was introduced, enabling investors to commit a fixed amount, ranging from $40 to $999, to securities.
During the 1950s, the number of shareholders in America experienced an annual growth rate of half a million, further solidifying Merrill Lynch's prominence.
Charles Merrill became famous not only for his talent and persistence in earning fabulous wealth but also for the reforms he initiated on America’s stock market, allowing many simple Americans to start investing and to generate income from the stock market.