How 2 guys created a user-friendly version of Wall Street in Omaha Nebraska
Fifty years ago, less than 3% of the American public owned stocks. Today that number is over 60%. Fifty years ago, individual investors had to have a relationship with a Wall Street broker and pay high commissions in order to purchase stocks. Today, over 70 million Americans manage their own investment portfolios for free, without a licensed broker.
What facilitated this dramatic change? The first factor was a change in the tax code that allowed workers to save a portion of their wages to build a nest egg to enjoy in their golden years. The second was the insight and perseverance of two men who taught Main Street how to invest and who built the technology to make it possible. Those two men are Warren Buffett and Joe Ricketts and they both built their companies on Farnam Street, in Omaha, Nebraska.
Buffett began his financial career in 1956, as a stockbroker at his father’s firm in the Omaha National Bank building at 17th and Farnam. A year later, he started his own investment partnership in his home at 3555 Farnam. The partnership flourished and grew to the point where it was required to register as a publicly traded company. This also caused him to outgrow his home office, and he moved to a rented space just down the block, in the Kiewit Plaza at 36th and Farnam. Last year, he signed a 100-year lease on the same space.
Buffett was enamored with the investment process. He was driven to share his knowledge with the public and began teaching a non-credit class at Omaha University. The University was situated several blocks from his home - at that time Farnam Street ran through the center of campus. With the transformation to a publicly traded company came the requirement to hold an annual meeting to update the company’s shareholders. This gave Buffett a captive audience to expound upon the finer points of the stock market and national economy.
In his 2021 letter to Berkshire shareholders, Buffett wrote, “ I taught my first investing class 70 years ago. Since then, I have enjoyed working almost every year with students of all ages.” Teaching, like writing, helps me clarify my own thoughts.”
The career of Joe Ricketts has many parallels to Buffett’s. After graduating from Creighton University, Rickett’s became a stockbroker with Dean Whitter. Shortly after he earned his license, the SEC passed a regulation that eliminated fixed commissions. Ricketts immediately recognized that making a comfortable living selling stocks had just gotten infinitely more difficult, but that didn’t diminish his fascination with the stock market. He and a fellow broker started a company that would allow individual investors to buy stock with commissions significantly anything Wall Street brokers would consider.
Rickets’ company began in a back room across Farnam Street from Buffett’s fathers' office. His initial effort required investors to speak with a registered broker to place a trade. Business was brisker than he expected, and they soon ran out of brokers and desk space alike. They then moved to a larger space two blocks west on 19th and Farnam.
Rickett’s original business model had licensed brokers respond to customer phone orders. The brokers then called the New York Stock Exchange to complete each transaction. It soon became evident that this method was too labor-intensive to handle the kind of volume he had in mind. His biggest obstacle was the regulators and their penchant for protecting the legacy Wall Street firms.
Despite the challenges, the business model was catching on because the barriers to entry were quite low. Soon, many more firms, most notably on the west coast, joined the discount fray. So, Ricketts took it one step further and adopted technology that eliminated the human contact. His new system allowed investors to go directly to the exchanges and place trades on a touch tone phone. This was a game-changer and a whole new industry was born.
Like Buffett’s business, Rickett’s business grew to the point that it had to become a publicly traded company. In 2013, he renamed the company TD Ameritrade and built a corporate headquarters befitting its size and stature at the western edge of Farnam Street.
Literally, Wall Street is a few miles of asphalt in lower Manhattan. The term “Wall Street” is a metaphor for the financial services industry that may associate with the powerful world of high finance. Farnam Street is a few miles of asphalt in Omaha. It should come to stand for the financial services industry that Main Street investors can call their own world of finance.
