Wall Street: Page One

When I was discharged from the Coast Guard, the law of gravity required I return to my job as a customer’s broker at Merrill Lynch. I found that my best customer, who had been handled by a partner while I was away, did not want to change back to a customer’s broker. It wasn’t the partner’s fault, but it didn’t make me happy.

I had been in civilian life a few months when Chester Gaines, a specialist on the floor of the New York Stock Exchange, who played gin rummy with me at the City Athletic Club, told me that judging by my gin game, I would do well trading on the floor of the Exchange. I’d never thought of such a thing. Besides, it needed the purchase of a stock exchange seat. My capital for such a purchase was about ninety-seven percent short.

In those days I used to play golf with a friend, Jerry Ohrbach, at Metropolis Country Club. One day, when we were in the same foursome, I got a seven on the first hole, an easy par-five. I was steaming, and asked Jerry what odds he would give against my getting a thirty-three on that nine. Par was thirty-five, so that meant I would have to be four under for the next eight holes. Jerry said, “1,000-to-1.” I said, “I’ll take a hundred dollars worth of that if you like,” and he said okay. He could afford the hundred thousand and I could afford the hundred dollars. Jerry had the best of the odds and I had a shot at my Alan Rice fortune. I made him sweat to the last hole. I needed a birdie there for the thirty-three, but didn’t come close.

When Chester Gaines made the suggestion of the stock exchange seat, I spoke to Jerry about it. He told me that the golf bet had scared him so much he would like to be partners with me. By borrowing from my father, one of my uncles, my wife, and adding my own few dollars, I got up twenty-five percent of the necessary capital. Jerry and his father, Nathan, put up the rest and became limited partners in the small firm, Dreyfus & Co., members of the New York Stock Exchange. And we lived happily ever after. Well, not quite.

We cleared through Bache & Co., the firm that had turned me down for a job as a customer’s broker. John Behrens became a partner and handled business in the office. I was on the floor of the Exchange. I executed orders for Bache, and traded for the firm’s account, with a small amount of capital. The first year, we made $14,000 trading. Jerry and his father, Nathan, didn’t realize how good that was. It was a bear market, the sort of market in which they say, “Not even the liars made money.”

Nathan Ohrbach had wandered into a brokerage firm in 1929 and had gotten the indestructible notion that you couldn’t make money trading in the market, and wanted us to get into the brokerage business. One day Jerry introduced me to a partner of Lewisohn & Sons, a stock exchange firm that cleared its own transactions. The story was that the partners of Lewisohn were getting old and wanted to get out of the business. Another reason, which we didn’t know at the time, was that the business was in bad shape. Jerry thought we should take over the firm. I wasn’t keen about this, knowing nothing about managing a brokerage firm, but went along with it because three of the partners were going to stay on. To shorten this story, after a year or so those partners were gone and I had to leave the floor, where I was reasonably competent, and start managing a brokerage firm, where I had no experience at all.

Business was bad. I cut my salary to zero, and the Ohrbachs didn’t draw interest on their money. We couldn’t even go out of business without considerable loss. In this pickle, we decided to try advertising. In those days New York Stock Exchange ads were proper—and dull. But if we wanted to advertise, the natural thing was to go to the agency that handled all the Wall Street advertising. The first and only ad they did for us, I wrote.

In those days the margin requirement for stocks was a ridiculously high seventy-five percent. I wanted to comment on that and wrote an ad titled “On Returning from the Moon.” In the ad, it was said, you have just returned from a five-year trip to the moon. Having made a fortune selling Blue Moon Cheese to the natives, you are anxious to invest some of this money. You haven’t seen a stock table for five years and you ask your broker for vital statistics on five of your favorite stocks. After getting the statistics, you thought the stocks were reasonably priced and told your broker to buy a hundred shares of each. Then the ad went on to say that all the statistics were correct, but the price of the stocks was one-half of what you’d been told. And it was suggested that the stocks were that cheap because of the ridiculously high margins. Whether the ad had an effect or not, three weeks later the margin requirements were reduced to fifty percent.

It didn’t take long for me to learn that the agency that did the Wall Street advertising was set in its ways. I went to a new, imaginative agency, Doyle, Dane & Bernbach. The first ad they wrote for us was different from Wall Street advertising, in appearance and in content. It said you don’t have to be old-fashioned to be conservative. I wasn’t crazy about that because it suggested that other firms were old-fashioned. When I was told that the agency planned to run this ad quite a few times (our budget, $20,000, was so small they couldn’t afford to spend much time on new copy), I decided to try to write the ads myself. This struck an unexpected aptitude in me. At that time I didn’t realize that my copying device was faulty. This can be a hindrance, but in this case it was an advantage. I tried to do ads that would get attention and be enjoyable.

Freddy Dossenbach, our account executive, and I lunched at Schwartz’s on Broad Street. Freddy would bring old prints and cartoons. Inspired by liverwurst, Swiss cheese, and iced tea, I would dream up copy to fit them. Our firm had little to brag about, so I just tried to give general advice hoping it would reflect favorably on us. Apparently it did. To my astonishment we won the first Standard & Poor’s Gold Trophy for excellence in advertising.

As a result of the ads some customer’s brokers who had decided to leave their firms for one reason or another applied for jobs. When a customer’s broker came with us, no matter how small his business, we ran a good-sized ad announcing that Joe Doaks had joined Dreyfus & Co. This ad was expensive, but valuable. Some of Joe Doaks’ customers might have been thinking of leaving him, but seeing his name in the business section of the Times made a good impression. So it helped him with his customers, and it also helped him with potential customers. There was another benefit that I’m not sure I recognized at first. When customer’s brokers considered leaving their firm, and that was always happening in the Street, they considered coming to Dreyfus & Co. because they knew they would see their names in the paper. So the firm grew steadily. Sizable producers came with us. Some with so much business they insisted on partnerships. At that stage it seemed desirable to take on partners, if they were the right sort. Soon we had enough partners to always have a quorum for an argument. (Over the years I’ve enjoyed partnerships with John Behrens, Samuel Pearson, Samuel Strasbourger, Robert Tulcin, John Cranley, Raymond Schibowski, Thomas Bligh and Duncan Cameron.)

At the age of thirty-three, without experience, I found myself managing partner of the firm. Most of the customer’s brokers were older than I. My only method was to try to work with people as friends. I could never boss people around. Once in a while somebody would call me “boss” and I would jump a foot. I don’t like that word.

What I learned at Lehigh about wish-thinking and rationalization was solid. Almost all of the customer brokers felt they weren’t being paid enough. Even when they knew they were being paid enough, they worried that a neighbor might be being paid more. (There were two brothers, not with us long, who were the worst. I used to say the Blank brothers were hundred percent honest, Max sixty percent and Arnold forty percent.) I solved the problem for all by putting the customer’s brokers on a sliding scale, the larger the production, the larger the percentage of commission.

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