Charles E. Merrill - The Khuram Dhanani Blog
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Khuram Dhanani

Charles E. Merrill

While American business history is filled with successful financiers, few can match the name recognition of Charles E. Merrill, founder of Merrill Lynch, now known as Merrill. 

Merrill altered the investment industry in the mid-20th century by promoting stock market investment to the growing middle class. Once considered a purview only of the wealthy, investment portfolios became a common form of savings for workers at nearly every income level. 

Born in 1885 in Florida, Merrill was the son of a medical doctor who owned a local drugstore. His family was financially comfortable, but not at all wealthy. Expected to help support the family, Charles began working in the drugstore at a young age. He also operated a paper route and had several other odd jobs. 

After finishing high school, Merrill was accepted to Amherst, but his family could not help him with the tuition so Charles returned to Florida and became a reporter for a small newspaper. Saving up some money, he enrolled in the University of Michigan’s pre-law program, only to abandon his studies after one year, spending a summer playing for a Mississippi semi-professional baseball team.

Merrill became engaged to a former college classmate and moved to Manhattan where her family lived. His fiancée’s father was an executive with a major textile manufacturer, and Merrill was offered and accepted an entry-level $15-a-week job as an office boy. Quickly promoted because of his natural intelligence and winning personality, the company’s managers soon put him to work fulfilling executive duties. 

Deciding to break off his engagement and sacrificing his job, Merrill became a bond salesman for a Wall Street investment firm. Taking a room at the 23rd Street YMCA, Merrill met Edmund Lynch. 

Lynch was working as a Wall Street stockbroker, and Merrill soon convinced his new friend to go into business with him. Neither young man had the necessary social connections or familiarity with the upper-crust Manhattan society, so selling stocks and bonds in Manhattan was difficult. 

Thinking creatively and free of the limitations that other investment houses imposed,, Merrill and Lynch developed selling strategies for a customer base they knew very well— middle-class merchants and business people with a modest amount of savings to invest. The results were spectacular. Merrill and Lynch built a customer base that stretched well beyond the confines of New York City, attracting business from thousands of small-time investors. They had a market, and now they had a market/fit.

Merrill expressed his innovative thinking by using competitive business strategies that appalled Wall Street traditionalists. He ran a special sale on war bonds, advertising them like retail products and selling them without a commission. His purpose was to attract customers who would then be willing to open investment accounts. 

Merrill was successful because of his intuitive feel for the ebb and flow of the stock market. Sensing an impending disaster, Merrill began warning his clients to reign in their stock speculation sharply. Early in 1929, he convinced Lynch that the firm should protect its downside and liquidate all but its most dependable assets. This helped Merrill Lynch avoid bankruptcy when the global economy collapsed shortly later. 

In 1939, with the Great Depression easing, Merrill Lynch had plenty of ready capital it could use as leverage. The company bought several brokerages and now had dozens of offices around the country.

Merrill Lynch maintained its commitment to selling stocks and financial products to a widespread, middle-class customer base. The company’s slogan became, “Bring Wall Street to Main Street.” Using his imagination and being able to express his ideas freely, Merrill once again demonstrated his penchant for innovation by executing a strategy that removed the intimidating, upper-class mystique of investment, styling the company’s branch offices in a low-key, unassuming manner that demonstrated a more appropriate market fit, which attracted more customers. With many prospective first-time investors still hurting from the Depression, Merrill innovated once again, providing transparency with annual financial reports, an unheard-of service for a privately held company.

Merrill also broke new ground by using advertising as leverage, bringing in even more clients with a tactic considered unseemly by Wall Street. Purchasing advertising space in newspapers and magazines comparable in size to department store spreads, even more branches opened across the country.

Merrill insisted on more innovations, requiring that his employees act with complete integrity to build and maintain the trust of customers. Compensation was salary-based, not commission-based, and service fees and other hidden charges were minimized or eliminated. These and other original strategies soon made Merrill Lynch the largest stock brokerage in the country.

By the 1950s, Merrill Lynch had more than 100 branch offices in operation nationwide and served more than 100,000 customers, and those numbers moved steadily upward over the decade.

Charles E. Merrill passed away in 1956 leaving behind a company that was the largest of its kind, and one that had fundamentally altered its industry. Middle-class wage earners were now comfortable with investing their savings in stocks, and brokerages across the country had learned how to handle these smaller accounts profitably. Today, it is difficult to imagine middle-class financial stability without the contribution of Charles E. Merrill who gave millions of average citizens the ability to invest and put their money to work.

While innovation and freethinking may have been the calling card for Charles Merrill, the cutthroat competition was the hallmark of Cornelius Vanderbilt, an entrepreneurial meet in the next chapter.

Khuram Dhanani
Khuram Dhanani
Khuram Dhanani
kd@softstonecapital.com