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

6 Creating a Nation of “Sound” Investors

During the Own Your Share years, the NYSE energetically endeavored to spread not just shareownership, but also economic education. In Exchange leaders’ eyes, the two tasks—“democratizing” the stock market and financially educating the public—went hand-in-hand. Broadening the nation’s shareowner base, Funston and his colleagues realized, would mean bringing into the market many individuals of modest means—and probably also of only modest education, including of finances. Presumably, novice investors would benefit from being taught some investing basics as, for example, how to read financial statements and how to minimize risk through portfolio diversification. The NYSE broadly construed “economic education” to also include the dissemination of material on the benefits of capitalism, the role of the Exchange as a bastion of capitalism as well as the critical functions of stock exchanges in general and their essential contributions to keeping countries (not just the United States) strong and free of communism. Big Board officials believed it was necessary to tutor investors and noninvestors alike on the importance of stock markets. If people appreciated stock exchanges’ functions and the way in which equity investing promoted individual and national chapter six Creating a Nation of “Sound” Investors In a quiet and utterly peaceful way, America’s middle income millions have come to hold the real balance of economic power, and this silent revolution has been accomplished without anybody’s head falling into the basket. . . . The financial community and the New York Stock Exchange have played a major role in helping to bring all this about. Through a number of broad new educational programs launched in recent years, we have tried to bring much greater understanding to what had been—for too many people—a baffling and mysterious area—the world of investment. rud lawrence, remarks to seton hall university (1957) Creating a Nation of “Sound” Investors 133 prosperity, those who were not currently shareholders might want to become equity investors. To build the shareowner ranks, the Big Board wanted to improve popular perceptions of Wall Street. Since the early 1900s, Exchange leaders had believed that if they could get the public to understand how the securities markets worked, popular attitudes toward Wall Street would improve, and more people would want to invest in the market, and also to support the NYSE against additional external regulations. As NYSE president Seymour Cromwell said in 1923, “The Basis of Cooperation is Understanding.”1 Similarly, another NYSE president, Charles Gay, had averred in 1935, “There is no mystery about the Exchange. We want the public to know just how we handle the orders entrusted to us and discharge the responsibilities placed upon us. Such a campaign of education will necessitate patience on our part. . . . Thus the Exchange will regain the confidence of the public because it is entitled to it, because it deserves it.”2 In the Own Your Share years, Exchange leaders’ commitment to investor education also emanated from a desire to protect themselves from the charge of enticing unsophisticated shareowners into the market. Yet the architects of the OYS message seem to have been motivated not just by self-interest, but also a genuine, altruistic desire to help shareowners avoid common pitfalls and increase their chances of investing success. They also wanted shareowners to understand the personal and national importance of “owning a share of America.” Funston, Lawrence, and the Exchange Board believed they had a profound responsibility to create not just a nation of investors, but also a nation of “sound” investors. They wanted this round of mass investing, unlike the 1920s, to be a success story for both the NYSE and the small investor, and they saw investor education as key. In their work disseminating information about how stock markets truly worked, NYSE officials in the mid-twentieth century resurrected tactics that their predecessors had used, such as tours of the NYSE’s Exhibit Hall and Visitors’ Gallery, seminars and speeches, brochures and pamphlets, as well as educational films.3 These tactics, however, had not been terribly effective in the past. Despite the sporadic efforts of the Exchange to dispel popular misconceptions about the stock market, erroneous ideas persisted in the early 1950s, such as the widespread notion that the NYSE controlled stock market prices and owned the stocks listed on the Exchange. In terms of basic investing knowledge, Americans at midcentury were woefully deficient. Few adults 134 A Nation of Small Shareholders could define even rudimentary...