Catching Lightning in a Bottle

How Merrill Lynch Revolutionized the Financial World

Winthrop H. Smith, Jr

• Publisher: Wiley
• Year: 2014
• Print ISBN: 9781118967607
• eBook ISBN: 9781118967614
• Edition: 1
• Topic: Business
• Subtopic: Management
• Index: Business

The fascinating story behind the company that revolutionized the financial world

Catching Lightning in a Bottle traces the complete history of Merrill Lynch and the company's substantial impact on the world of finance, from the birth of the once-mighty company to its inauspicious end. Throughout its ninety-four year history, Merrill Lynch revolutionized finance by bringing Wall Street to Main Street, operating under a series of guidelines known as the Principles. These values allowed the company to gain the trust of small investors by putting the clients' interests first, driving a business trajectory that expanded capital markets and fueled the growth of the American post-war economy. Written by the son of Merrill Lynch co-founder Winthrop H. Smith, this book describes the creation and evolution of the company from Charlie Merrill's one-man shop in 1914 to its acquisition by Bank of America in 2008.

Author Winthrop H. Smith Jr. spent twenty-eight years at the company his father co-founded, bringing a unique perspective to bear in telling the story of the company that democratized the stock market and eventually fell from its lofty perch.

• Learn why the industry initially scoffed at Charles Merrill's "radical" investment ideas
• Discover the origin of the Principles, and how they drove operations for nearly a century
• Find out why the author left a successful Wall Street career, and why it was such a smart move
• Examine the culture and values that built Merrill Lynch into one of the world's most successful and respected companies

Revolutionary vision is rare, and enduring success is even more so. When a single organization demonstrates both of those characteristics, it is felt throughout the world. Discover the fascinating story behind Merrill Lynch and the men who built it from an insider's perspective in Catching Lightning in a Bottle.

Part One

A young and charismatic Charlie Merrill begins to charm Wall Street.

Chapter One
Little Doc
(1885–1907)

The wooden sidewalks on either side of the single dirt street were perfectly still, without any moving thing. The town’s commerce was conducted in false-fronted shacks, but all of the respectable enterprises—a drugstore, two hotels, and several cafés—were closed. On one side of town, there were nine churches—four white and five black. On the other side, on the banks of Porter’s Bayou, there were at least that many brothels and saloons. But even they weren’t open for business today.

It was August 1907, and all across small-town America, in each of the other forty-four states, it was the same as here in Mississippi. Everyone was just outside of town, at the ball park. Nearly every town in America had its own ball park and its own ball team, and both were sources of considerable civic pride. The smaller the community, the greater the pride. Challenges were issued to neighboring towns, and the games became festive occasions with bands and cookouts. Special trains brought in the out-of-town fans, though visiting teams were at a disadvantage because the home team supplied the umpires. Nevertheless, the betting was heavy.

Baseball really was the national pastime, and in Shaw, this really was the only game in town. No one missed it. It would be years before radio broadcasts of major-league games began eroding attendance. Typically, the games were played on rock-studded vacant lots and in cow pastures where sometimes dried fecal matter served as bases. Shaw’s ball park was an old cotton field that had been dragged more or less smooth with a huge steel rail. The backstop was fashioned from weathered, discarded lumber and chicken wire. The bases were burlap bags filled with sand. The field was surrounded by horse-drawn wagons and buggies, and fans watched attentively from chairs and spread-out quilts they had brought with them.

Shaw’s center fielder that day was a short, wiry man just a few months away from his twenty-second birthday. While his teammates looked vaguely comic in their beanie caps and baggy uniforms, the man in center field was tailored to parade-ground neatness. The only shabby thing was his glove, which was nothing more than a flimsy lace-less pad, not unlike a hot pad, that required him to use his fingers when he caught the ball. He played a shallow center field—not because he had great range but because he had a weak arm, the legacy of a boyhood fight in which it was broken.

Like most town teams, Shaw’s was semiprofessional, meaning the players, at least some of them, were paid, but not on a full-time basis. The Shaw nine played two games on Saturday, one on Sunday. The center fielder, along with the catcher, the pitcher, and the shortstop, were out-of-towners who were paid to play. Local, unpaid talent filled in the rest of the Shaw roster. In the middle of the game, a hat would be passed around and fans would be exhorted to “loosen their wallets.” The center fielder was paid $25 a week, which is the equivalent of about $500 today.

From this we can conclude that the center fielder’s baseball talent was above average, but just how far above is not known. At five foot four, he presented pitchers with a small strike zone and drew a lot of walks. What is certain is that he was one of the most popular players. He had a melon slice of a smile that crinkled the skin around intense, bleached-denim eyes. His teammates called him Merry Merrill, and he was the life of every party. One young lady of this day remembered in later years that “everyone loved it when Charlie Merrill came to town, especially the young women, because he was so much fun.”

Charles Edward Merrill was born on October 19, 1885, in Green Cove Springs, Florida, to Dr. Charles Morton Merrill and Octavia Wilson Merrill. He was the eldest of their three children and their only son. He had ancestral roots in the North as well as the South; his grandfathers had fought on opposite sides in the Civil War.

As a boy and an adult, Merrill had an abiding respect for the values and traditions of the Old South, which he inherited from his mother, who had been born on a Mississippi cotton plantation in 1861. An intelligent young woman from a “good family,” Octavia Wilson attended Maryville College, in Maryville, Tennessee. She was part of Maryville’s secondary school program, which boarded its students. There, when she was fifteen years old, she met Ohio-born Charles Morton Merrill, who was studying medicine at the college. He was twenty years old. Octavia and Charles courted by letter for almost seven years while Charles pursued his studies. He received his medical degree in 1881 from New York’s Bellevue College and Hospital, and on New Year’s Day 1883, Charles and Octavia were married.

Dr. Merrill suffered from asthma and after their marriage the couple decided to settle in Florida for his health. They moved to Green Cove Springs, a trendy, prospering resort town with a reputation for the curative powers of its mineral springs. The nation’s elite, including Astors and Vanderbilts, came there to drink and bathe. Charles Merrill became the town doctor and the owner of the village drugstore—a dual role that was common for the time.

At various times in his life, Charlie Merrill claimed to be a direct descendant, through his mother, of John Alden, the New England Puritan, signer of the Mayflower Compact and hero of a Longfellow poem. In successfully applying for membership in the Sons of the American Revolution, Merrill traced his father’s roots back to Nathaniel Merrill, who came to America in 1633.

Octavia Wilson, CEM’s mother, was the oldest of ten children of Edward and Emily Wilson, who owned Round Hill Plantation in Lexington, Mississippi. Her father, a private in the Confederate army, was captured during the siege of Vicksburg, and returned to fight again after being released in a prisoner exchange. The plantation survived the Civil War, but the family was impoverished during the Reconstruction years.

There is no question that the single most influential person in CEM’s life was his mother. As the eldest child, she had learned about responsibility and duty at an early age. An avid, lifelong reader, particularly of poetry, she graduated from the Maryville boarding school in 1876 at the age of fifteen. Over and over, she told her only son of the value of education and the obligation he had to succeed at some worldly endeavor. CEM remembers her saying to him, “Charlie, you can get anything in the world you want, as long as you want it bad enough.”

According to a story Octavia Merrill told her grandchildren, CEM had just learned to talk when she took him out on the porch one night to show him the moon. He pointed his arm straight up and began yelling, “I want it! I want it!” He threw a tantrum on her lap when he didn’t get his wish.

CEM’s entrepreneurial talents surfaced early in Green Cove Springs, which sat on the banks of the St. John’s River, about thirty miles downstream from Jacksonville. Every winter the town hosted Northerners who came to drink its medicinal waters and bathe in its sulphur pools. White Sulphur Spring flowed at the rate of three thousand gallons per minute and was impounded into a pool that, according to the local Chamber of Commerce, offered the bather “long life and good health.” At the age of eight, Charlie Merrill would bet visiting Yankees a dime that he could cross the pool underwater faster than the dupe could swim it above water. Diving down, Charlie would crawl across the bottom of the pool aided by a swift current unknown and unavailable to the swimmer above him.

Charlie worked all day on Saturdays and for four hours on Sunday in his father’s drugstore, and he soon came to be called Little Doc. At the age of twelve, he decided to raise soda fountain revenues by adding grain alcohol, readily available in the pharmacy, to the standard soft drinks for selected customers. The new hard drinks cost more money, and for a few weeks in 1897 drugstore revenues soared to all-time highs as word spread that spiked drinks were available at the soda fountain. As soon as Dr. Merrill discovered his son’s merchandising tactic, he ordered an end to it.

Forty-two years later in an interview for an unpublished biography, CEM said that his first retail experience convinced him there must be a better way to run a store: “Even as a boy, it was obvious to me that the best that could be expected from a retail store, under conditions that existed in those days, was a very poor return on the capital and risk in the business, and practically no return if the business had been charged the proper salaries for the efforts and time of my father and myself. The turnover was so slow, and the credit losses were so large, that notwithstanding a very high margin of profit, there was almost nothing left at the end of the year. Naturally, my father had to interview a steady stream of traveling salesmen, keep the books, and perform sundry duties in and about the store, all of which drew heavily on his time and resulted in the neglect of his practice. The hours of labor were long; the store opened at seven o’clock in the morning and closed, theoretically, at twelve o’clock at night; as a practical matter, it was open almost twenty-four hours a day. On the shelves of this store, there must have been twenty-four thousand items, and my best recollection is that more than half of these items didn’t sell once a year, and incidentally, the soda fountain department and the store, generally, were quite unsanitary. Today in studying a modern drugstore, the mystery of how my father and I managed to eke out our living still remains unsolved.”

In 1898 the Merrills attempted to improve their fortunes by moving to Knoxville, Tennessee, and when that didn’t work out, they returned to Florida and set up residence in Jacksonville. However, this wasn’t the answer to their cash-flow problems, either—and thirteen-year-old Charlie continued to be a young man of many enterprises. On his way to a Sunday-school picnic on May 8, 1898, he passed a railroad station where the latest copies of the Florida Times-Union and Citizen were being unloaded from a Tampa-bound train. The Spanish-American War was raging, and it was easy to read the headline: DEWEY TELLS STORY OF HIS VICTORY. Charlie spent all his money, $5, to buy a hundred copies, which he lugged out to the picnic grounds and hawked for twenty-five cents each. Patriotic, news-hungry buyers, eager to learn of the destruction of the Spanish fleet, gladly paid extra to read the good news. Merrill called this “my first financial coup.”

Like Horatio Alger, Charlie became a newsboy. He peddled the Times-Union on Ward Street in the heart of Jacksonville’s red-light district. Though family legend holds that the street’s customers bought the papers to hide their faces, it was far more likely that the prostitutes bought most of them. And they tipped generously. He also repeated his Spanish-American War coup in 1901 when President William McKinley was assassinated. So successful was the Ward Street adventure that when it came time to sell the concession, he asked for and received $75, the modern equivalent of about $1,500, from another boy.

Compared to the lure of his business activities, school held little interest for the young Merrill. This concerned his mother, who intended to prepare her son for success by sending him to one of the prestigious Northern colleges. In the fall of 1901, she took him out of Jacksonville’s Duval High School and enrolled him in the John B. Stetson University, a preparatory school in Deland, Florida, about fifty miles south of Jacksonville. Stetson was considered the best prep school in the South—but by Northern standards that still wasn’t very good.

During Charlie’s final year at Stetson, his father was robbed and brutally beaten as he went for an after-dinner walk near his home in Jacksonville. Dr. Merrill was in a coma for several days, and his survival was in question. Charlie was called home from Stetson for what he later called “those dreadful weeks.” The elder Merrill regained consciousness, but he was confined to a wheelchair for months and unable to practice. Word circulated among his professional peers and patients that his skills as a physician had been permanently impaired, and, in fact, Dr. Merrill, only forty-six years old, never recovered physically or economically.

Octavia Merrill responded to the financial crisis by opening two boardinghouses (one for whites, the other for blacks), but money was still scarce, and there was a steady stream of letters from Stetson financial officials, who were undergoing their own budget crisis, demanding payment for overdue bills. Charlie left Stetson before completing his final year—but apparently for disciplinary rather than financial reasons. According to CEM’s son, Charlie was expelled from Stetson after he dropped a cracker box of water from a fourth-floor dormitory window on a professor, whom he had mistaken for a classmate.

Still, his mother was steadfast in her determination to send Charlie to one of the better colleges in the North. Toward that end, the family sold a small piece of land they owned in Miami, and with these profits, plus an athletic scholarship, Charlie went north to Massachusetts’s Worcester Academy for another preparatory year.

CEM’s time at Worcester, the 1903–04 academic year, was an unhappy one. As a Southern boy of modest means, he was shunned and ridiculed by the New England elitists of the all-male student body. Some of his Northern classmates complained that they could barely comprehend his drawling speech. And there was a definite stigma to receiving financial aid. CEM paid only $185 of the estimated $700 annual cost to attend Worcester and was obliged to live on the top floor of Davis Hall with the other athletes, who were scorned as “hired hands.” Even with the scholarship, Charlie had to work by waiting on tables in a dining hall and selling suits for a local clothier on a commission basis to wealthier students on campus.

If the Worcester athletic program expected to get a superstar in Charlie Merrill in exchange for their scholarship, they were hugely disappointed. He was decent at baseball and became the team’s center fielder. He also went out for football, but at 114 pounds or so he was relegated to the second and third strings, seldom actually played in a game, and suffered a broken nose in practice. There is a story—widespread, probably apocryphal and apparently originating with CEM himself—that lightweight Charlie Merrill would get into a game when the team needed a few yards because they could throw him over the line of scrimmage. This, like most of the stories passed on by CEM through his children, must be taken with not a few grains of salt. While there is a basic truth in them, this truth was often embroidered because they were usually intended as fatherly advice or cautionary tales.

With his work schedule and athletic obligations, Merrill had little time for academics at Worcester, and it is not surprising that at the end of the year he didn’t have enough credits to qualify for a diploma. In the end, though, school officials agreed to an unusual arrangement whereby they would grant him his diploma if he could successfully complete his first year at Amherst College. Amherst officials allowed him to enroll through a backdoor provision of the admissions policy.

That summer CEM worked as a waiter in a hotel on an island off of Portland, Maine, where he received a salary of $5 a week plus lodging, meals, and tips. He was there for sixteen weeks, and at the end of each of them he walked to the post office, where he wrote a $5 money order to himself and mailed it to Amherst with a note on the envelope: “Hold Until Called For.” When he arrived on campus in September, there was $80 waiting for him.

In the fall of 1904, Octavia Merrill fulfilled one of her dreams for her son by seeing him enroll in Amherst College as a freshman. Indeed, she was waiting for him when he arrived...

Table of contents

• Cover
• Contents
• Title
• Copyright
• Dedication
• Author’s Note
• Prologue
• Part One
• Part Two
• Part Three
• Epilogue
• Index
• End User License Agreement