Shearson, Hammill & Co.

Shearson, Hammill & Co. was a once-prominent Wall Street investment banking and brokerage firm that played a significant role in the American financial landscape, particularly during the mid-20th century. Founded in 1902, it grew from a small partnership into one of the nation's largest retail brokerages, catering to individual investors. The firm is a perfect example of the “go-go” years of the 1960s, a period of speculative fever and high trading volumes. However, its most enduring legacy for value investors is not its own success, but its role in one of Warren Buffett's classic investments. Shearson’s story is a fascinating corporate saga of boom, bust, and a series of mergers that saw its name eventually vanish from Wall Street, absorbed into the financial giants of today. It serves as a powerful case study in industry consolidation and the opportunities that arise when good companies face temporary crises.

For students of value investing, the Shearson, Hammill & Co. story is synonymous with Warren Buffett. In the late 1960s, Wall Street was choking on its own success. A surge in trading volume led to the infamous “back-office crisis”, where firms' administrative departments couldn't process the mountains of paperwork. This operational chaos created massive uncertainty and hammered the stock prices of brokerage houses. While others saw panic, Buffett saw opportunity. He recognized that Shearson had a strong franchise and a valuable client base, but its stock was being punished for a temporary—and solvable—problem. It was a classic Buffett scenario: a great business on sale due to short-term fear. Through Berkshire Hathaway, he invested in Shearson, confident that the industry would eventually sort out its operational mess. He was right. As the crisis subsided and the firm's true earning power became clear again, the stock price recovered, handing Buffett a significant profit. This investment is a textbook example of looking past market noise to find underlying value.

The name “Shearson” lived on long after the original company was gone, but it became part of a corporate soap opera of merger and acquisition activity that reshaped Wall Street. The lineage is a dizzying “who's who” of finance:

• 1974: Facing financial difficulty, Shearson, Hammill & Co. merges with Hayden, Stone, Inc. to become Shearson Hayden Stone.
• 1979: The firm continues its expansion by merging with Loeb, Rhoades, Hornblower & Co. to form the powerhouse Shearson Loeb Rhoades.
• 1981: American Express acquires the firm in a landmark deal, creating Shearson/American Express. The famous “Don't leave home without it” company now had a major Wall Street brokerage.
• 1988: In a further move, it acquires E.F. Hutton, creating Shearson Lehman Hutton. The name changed several more times.
• 1993: The business was eventually spun off and merged with Smith Barney, and later, this combined entity became a core part of Morgan Stanley's wealth management division.

This trail of deals highlights the intense consolidation within the financial services industry over the last 50 years.

The history of Shearson, Hammill & Co. offers several timeless insights for the ordinary investor:

1. Crisis Creates Opportunity: The market often overreacts to bad news. The back-office crisis that allowed Buffett to buy Shearson on the cheap is a prime example. Patient investors who can distinguish a temporary setback from a permanent impairment can find their best bargains in times of fear.
2. Focus on the Business, Not the Name: Corporate names change, especially in an industry like finance that is prone to mergers. What matters is the underlying business, its competitive position, and its earning power. The “Shearson” brand is gone, but the business of serving investors it once conducted lives on within a larger company.
3. Industries Consolidate: Mature industries, from banking to airlines, tend to consolidate over time. This can be both a risk (your company gets bought out for a low price) and an opportunity (your company is the acquirer or is bought for a premium). Understanding these long-term trends is a crucial part of investment analysis.