In 1952, the New York Stock Exchange conducted a survey to see how many Americans participated in the stock market. The findings were sobering: just 6.5 million individuals owned shares in publicly traded companies -- a mere 6 percent of the adult population.
By contrast, in the century's first three decades, the number of individual shareholders had risen from some 1 million to 10 million, all in a less populous America.
The Great Crash of 1929 still cast a long shadow in the early 1950s. The Dow Jones Industrial Average remained below its pre-Crash high. Savings bonds were the investment of choice, while stocks retained a dicey reputation. Nearly 70 percent of families with annual incomes over $3,000 said they were opposed to buying stocks.
The 1950s, however, would be a decade in which Americans rediscovered the stock market. This rediscovery was both a cause and an effect of the decade's rising prosperity, as companies tapped into an expanding source of capital while shareholders enjoyed annual returns averaging in the double digits.
As such, the fifties provide lessons for our own time, both hopeful and cautionary. On the hopeful side, the decade demonstrated the profound resilience of the American stock market, in bouncing back from the Great Depression and World War II. On the cautionary side, it took over a quarter century for the market to regain its 1929 peak, a daunting span for even the most patient of investors.
While the fifties brought a return to optimism, it was a cautious optimism. The mid-century market's boosters sought to differentiate the institution from its pre-Crash days. Thus, they accepted tighter rules on margins and disclosure, and emphasized long-term investment over rumor-driven speculation. This conservative mood on Wall Street helped build confidence throughout the country that the equity market was sound.
Policymakers and financial executives today face the challenge of trying to restore public confidence in a financial sector recently swept over by turmoil. The 1950s experience suggests that this can be done. But it also indicates that public- and private-sector decision-makers in finance must show they have learned substantive lessons about what went wrong. That last condition is something that remains in doubt today.
The Dow, which had spent most of the late 1940s below the 200 line, opened the new decade at 200.13. The index climbed steadily in early 1950 as the economy rebounded from the previous year's recession. By late May, the Dow had reached 227, its highest level since September 1930.
In early June, Time magazine touted the market upswing as "the biggest, heftiest bull that Wall Street had seen since the wild and rampaging days of 1929," and also noted that the new bull had "an entirely different pedigree from the 1929 breed" since it was not characterized by "shoeshine boys, elevator operators and other shoestring speculators trying to make a killing with 90 [percent] of their stock bought on credit."
Later that month, the Korean War broke out, dragging the Dow back below 200 by mid-July. But confidence in the ongoing economic boom soon reasserted itself, and defense and transportation stocks got a boost as troops and supplies shipped to Korea. The market reacted with relative calm to China's entry into the war later in the year, and the Dow closed 1950 at 235.42.
The economy continued expanding in 1951, posting a 7.7 percent GDP gain compared to 8.7 percent the previous year. The Dow passed 270 in September, and Time again assured its readers that this bull was "different from its predecessors, largely because there has been none of the speculative frenzy that usually accompanies bull-market tops."
The market continued rising at a stately pace. The Dow closed 1952 at 291.90. The index was back below 270 in mid-1953 as the economy slipped into a mild recession and the Korean War wound down. The index edged back up to 280.90 at end-1953, and was poised for further gains as growth resumed the following year.
Selling the Market
Despite the market upturn, concerns persisted on Wall Street and among opinion leaders that the public was not along for the ride. In July 1953, Time worried that "there is a shortage of risk capital that threatens to slow the pace of industrial progress," and attributed this shortfall to "the melancholy fact [that] only a relative handful of Americans are willing to 'take a chance' on the nation's economic might by buying shares in U.S. industry."
But efforts to rectify that precise problem were already gaining momentum. A key figure in the push to expand public participation in the market was G. Keith Funston, who took the $100,000-a-year job of New York Stock Exchange president in 1951 at age 40. A tall, outgoing former president of Connecticut's Trinity College, Funston had a background that ranged from selling radiators to administering wartime production. Now he took on the mission of being, as he put it, "a salesman of shares in America."
Funston launched a marketing and education campaign under the slogan "Own Your Share of American Business." This involved doubling the exchange's advertising budget, setting up displays around the country, putting out a monthly magazine and producing films about the stock market for schoolchildren and investment clubs.
Calling share ownership "people's capitalism," Funston argued plausibly that such financing of American industry could help fight Communism and blunt the appeal of socialism during the Cold War. Moreover, he set up an installment program that let people buy into people's capitalism for as little as $40 per month.
One brokerage firm embraced this mass-market emphasis with particular gusto; it had emerged from 1940s mergers as the industry's biggest player and saw an expanded customer base as crucial to future growth. This was Merrill Lynch (known as Merrill Lynch, Pierce, Fenner & Beane before becoming Merrill Lynch, Pierce, Fenner & Smith in 1958). With its own generous ad budget, the firm grabbed some 40 percent of the accounts opened under the exchange's installment program in 1954.
Merrill Lynch's knack for innovative marketing took a variety of forms: sending brokers out in buses equipped with desks, armchairs, radio phones and stock tickers, for instance, or joining forces with General Mills on a "We like Wheaties because..." contest in which winners were paid with stocks (with free advice on what companies to select).
On Nov. 23, 1954 the Dow closed at 382.74, a mild gain of some three points from the previous day's close but an important milestone nonetheless -- the first time the market had closed above 381.17 since its pre-Crash peak on Sept. 3, 1929. The Dow kept rising in subsequent weeks, passing the 400 level on Dec. 29.
Time, looking back at the previous year in January 1955, celebrated American industrial prowess. "Behind the smooth and modern facades of the nation's new factories, whole new industries were being born," the magazine stated, citing how the electronics industry, having developed guided missiles in wartime, was now involved in automating factories for peacetime production.
The market continued rising in 1955, as the economy grew by 7.2 percent. In late September, President Dwight David Eisenhower had a heart attack, which rattled investors and helped pull the Dow from 487 down to 438 in mid-October. But the bull proved resilient once again, and the Dow ended 1955 at 488.4. The index closed above the 500 mark for the first time on March 12, 1956.
The cover of Time's Nov. 21, 1955 issue carried an illustration of Funston smiling while a robust-looking bull stared from the background, all amid a swirl of stock certificates and ticker tape.
Ford Motor Company's stock issue on Jan. 18, 1956 was a powerful demonstration of, and further boost to, investor enthusiasm. The automaker's 10.2 million shares fetched a record $660 million, with some 500,000 investors in on the action. "Everybody thought he had a God-given duty to go out and buy Ford stock," a Chicago broker told Time. "We didn't have near enough to go around." Funston's "people's capitalism" was proving popular indeed.
Sputnik and Beyond
Shares were sinking in late 1957 as the economy slipped into recession. The Dow, after peaking above 520 in July, closed at 465.82 on Oct. 3. The next day, the Soviet Union launched Sputnik I, the first artificial satellite, sparking much fear that American capitalism was being overtaken by Soviet Communism in science and technology. The Dow slid to a bottom of 419.79 on Oct. 22, and closed the year at a lackluster 435.69.
By mid-1958, however, the economy was on the mend, and the post-Sputnik emphasis on research and education had begun resurrecting confidence in the nation's industrial and technological prospects. The Dow closed above 500 on July 25, a permanent crossing of that line. The index closed the year at 583.65.
The economy closed the prosperous decade of the 1950s with a boom, as GDP in 1959 grew by another 7.2 percent. The Dow pushed above the 600 line on Feb. 20 and closed the year at 679.36. The New York Stock Exchange conducted a 1959 survey and found there were now some 12.5 million individual shareholders in America -- almost double the number in 1952.
A Broad Market
The expansion of shareholding that began in the 1950s continued in subsequent years. In 1965, a New York Stock Exchange survey found the number of individual shareholders in America had risen to over 20 million. In 1970, the number was over 30 million.
In a 1975 survey, the number had dropped to 25 million, a reflection of the dismal bear markets of the early seventies. In 1980, however, individual shareholders had again reached 30 million. A 1990 survey found there were 51 million shareholders, although different methodologies made this number not strictly comparable with earlier surveys.