We live in a volatile world. And the stock market is no exception. Shares have lost a third to a half of their value in the past two years and some share prices are down to levels not seen since the mid to late 1990s. Many of us are feeling the pain.
But we shouldn’t feel too sorry for ourselves. Investors in the past lived in a much more uncertain and less transparent world. There were few financial institutions such as pension funds and unit and investment trusts which did the investing for them. Investors had to make their own investment decisions and these decisions were much more important as many people –so-called rentiers – lived on the income from their investments. They did not have good pension plans on which to depend for their old age. And the amount of income they received from their investments dictated how many servants and carriages they had and hence their social status. If they lost money on the stock market, and lived in ‘reduced circumstances’, their previous ‘friends’ stopped visiting them. Social class was determined by income. This comes out clearly in the novels of the nineteenth century – for example, Miss Matty in Mrs Gaskell’s Cranford and Mrs Bates in Jane Austen’s Emma.
Women had a particularly raw deal. From the 1850s onwards, there was a surplus of single women, which can be explained by primogeniture amongst the wealthier landed gentry – that is, the eldest sons got everything, the younger sons couldn’t afford to marry, and the daughters did not have a large enough dowry to attract a suitor. Too high class to work, these daughters depended on their investment income, especially after their parents had died, for a respectable lifestyle. And there were lots of them. Trollope novels are full of them – Lord George Germain had four unmarried sisters in Is He Popenjoy? And Sir Marmaduke Rowley had no less than eight unmarried daughters in He Knew He Was Right. And widows also took investment risks to ensure their children could go to the right schools and mix with the right social classes. And the problem got worse by the end of the nineteenth and early twentieth centuries when the yield on risk free government bonds fell to below three per cent.
The limited liability companies acts of the 1850s and 60s opened the floodgates to a wave of company flotations but also to a wave of booms and busts – for example, the crash triggered by the collapse of the bank Overend Gurney in 1869 – the basis of the story of Anthony Trollope’s famous novel, The Way we live now. The Baring crisis of 1890 also caused ructions and railway shares, an early nineteenth century favourite, had a major boom and crash in the 1840s, referred to in novels by both Charles Dickens and Wilkie Collins.
Investors, especially widows, spinsters and clergymen, were suckers for beautiful company prospectuses which promised high returns and no risks, such as the Burma Ruby Mines prospectus, issued in 1889, which, as well as providing beautiful maps of a faraway country, reassured readers that ‘having the sole control of the only known mines in the world producing these very valuable rubies, it is expected that the company will be able to regulate the product so that a good price for the stones can be steadily maintained’. The shares certainly promised higher returns than the measly 2 or 3% then available on government bonds. Despite the fact that most investors never left British shores, many – especially before World War I – spread their risk across the globe, happy to invest in companies operating in India, Canada and Australia or in Argentinian, Chinese or Russian railway bonds. The world was on the gold standard and a sterling cheque was honoured almost everywhere. They thought the world was their oyster and I still have the – worthless – share certificates of my great uncle whose particular preference was for Central African mining company shares.
Even when companies with a track record were floated, investors received limited financial information and were reliant on articles in newspapers whose editors could be bribed by unscrupulous promoters to “puff” or promote certain dubious concerns. Investors tended to take much on trust and felt happiest when they received regular directors and the directors on the board were titled and the Chairman, preferably a Lord, gave a good speech at the annual general meeting. And annual general meetings were very popular – in some cases so popular that the police had to be employed for crowd control. Cecil Rhodes, after whom Rhodesia was named, was a director of the British South Africa Company. At a 1901 meeting, thousands of shareholders were unable to get into the meeting room at the Cannon Street Hotel – which already held 2,000. There was a cry from the cheering crowd outside that only the Royal Albert Hall would do! But not all directors knew as much about business as Cecil Rhodes. The Marquis of Dufferin and Ava had previously been Viceroy of India and Governor-General of Canada before taking up the post of Chairman of London and Globe Corporation in 1899. At the annual general meeting, he confessed to distress at the failure of the company. A small shareholder, Arnold White, stood up and said that he had invested ‘entirely on the strength of the Chairman’s name’ and his confidence in the Chairman ‘had been increased by the noble, manly and touching address to which that meeting had listened’. He went on to ask that, as the Chairman ‘had in the frankest and manliest way admitted his ignorance of the particular business which had brought about the company’s misfortunes’ he should consider adding someone to the Board who might know something of the affairs of the company. Three cheers for the Chairman and three more for Lady Dufferin terminated the proceedings.
At these meetings, both women and men were not afraid to question management, taking a lively interest especially when investing in retail stores and restaurants. At the J. Lyons meeting, they made suggestions as to menus and where to locate the cafes, and also enquired about waitresses’ pay. They wrote to the chairman of the Prudential Assurance Company asking for higher dividends and also making suggestions as to how to manage the insurance business. They asked after overcrowding in Indian trains and about employee share schemes in mining companies. There is a long and honourable tradition of shareholder criticism which we see today at meetings of partly nationalised banks Lloyds and Royal Bank of Scotland. Not all shareholders were active, some happy just to cash the dividend cheques. But enough shareholders took a lively interest in what was to them their passport to an adequate income and a decent old age.