The People’s Broker

“In the jungle among the money funds, there is only one king.”

Those who have been in the investing game long enough will probably remember the slogan for the Dreyfus Fund, the top-performing mutual fund of the 1950s and -60s started by Jack Dreyfus. The ads for the fund featured a lion striding out of the Wall Street subway station and ran essentially unchanged for over 40 years.

Dreyfus himself was one of the kings of Wall Street, but he also had the common touch. His populist, take-it-to-the-people approach made him not only a financial pioneer (and a very rich man), but also a fierce advocate for the little guy.

In his memoir, The Lion of Wall Street, he wrote that steam came out of his ears whenever he felt that “the American people have been jerked around.”

Dreyfus was born exactly 100 years ago, on August 28, 1913, in Montgomery, Alabama. His early career was utterly undistinguished: by his own accounts, he was a lackluster student, both in high school and later at Lehigh University. He fumbled his way through jobs as a candy salesman and industrial designer before landing a kind of apprenticeship at a Wall Street brokerage firm—an apprenticeship that his father surreptitiously paid for.

After World War II, however, things started to happen. Dreyfus started his own brokerage firm in 1947, and then, four years later, hit upon the inspiration that would change the U.S. investment landscape: the mass-market mutual fund, geared towards individuals instead of large financial institutions. Such funds would, he hoped, give ordinary investors the opportunities previously enjoyed by professional financiers. Now he just needed to attract clients.

He had his work cut out for him. Back in the pre-IRA day, investing in the stock market was for high rollers and wheeler-dealers, not for ordinary families with their 401(k)s. Average Joes kept their money in their mattress, which is to say, in the bank, so Dreyfus learned to master the burgeoning art of advertising. His firm’s TV spots blended ebullience and earnestness: “The Dreyfus Fund hopes to make your money grow, and takes sensible risks in that direction.” “Christopher Columbus: America’s first speculator.”

It worked. The company exploded. Investor’s Business Daily shows the Dreyfus Fund as yielding 604% from 1953 to 1964, compared with 346% for the Dow Jones and 502% for the next-best fund. Life magazine did a spread on the “Wall Street Lion,” and later Barron’s would call Dreyfus the second-most-influential money manager of the 20th century.

It was at this point that Dreyfus had the first of many battles with Goliath of government institutions. Just after his firm premiered its trademark commercials featuring the king of the cats, the SEC passed a law forbidding TV spots for mutual funds. For years, the company was unable to air any new ads. The SEC later rescinded the law, but the episode doubtless confirmed Dreyfus in his opposition to bureaucracies that, in his view, denied ordinary citizens access to potentially beneficial information.

His greatest battle was yet to come. In the 1960s, Dreyfus began to suffer from severe depression, which he thought was caused by too much “electricity” in his body. Flawed reasoning, but strangely, it served him well: when he asked a doctor for a prescription for Dilantin (phenytoin), an epilepsy medication, the drug seemed to cure him almost overnight.

Thus began the crusade that would last the rest of his life. Convinced that the drug had medical uses beyond those for which it was commonly prescribed, he wrote an earnestly titled book, A Remarkable Medicine Has Been Overlooked, and began lobbying for further investigation of phenytoin’s benefits. His aim was to help people who suffered as he had, but he soon found his way blocked by a formidable opponent: the FDA.

It turned out that FDA regulations forbid so-called off-label uses of medications—i.e., prescribing drugs for ailments other than those they were designed to alleviate. No matter how beneficial a drug may be, companies and individual doctors cannot publicize its effects in the official literature if it hasn’t been specifically approved for a given purpose. In Dreyfus’s view, this hyper-cautious bureaucratic attitude caused millions of ordinary Americans to suffer needlessly: “Without FDA approval, drug companies cannot market phenytoin as anything other than an anticonvulsant, and most doctors remain in the dark as to its versatility…Millions of people in this country alone suffer because of the letters FDA.”

Dreyfus spent the next 30 years trying to persuade doctors, senators, even President Clinton himself to liberalize FDA regulations, but to little avail. The $100 million of his own money that he spent to promote phenytoin for other uses never succeeded in winning widespread approval for the medication, in part because its manufacturer, Parke-Davis, didn’t want to invest in a product whose patent was about to expire.

But if Dreyfus’s medical lobbying yielded little fruit, his legacy to ordinary investors was tremendous. His methods for managing his mutual fund, which included trading stocks rapidly, buying companies that are on the upswing regardless of their price, and close scrutiny of charts that track stock prices, have influenced countless major investors such as Charles Schwab and Ned Johnson. Meanwhile the popularization of the mutual fund as a financial product has changed retirement as we know it.

Jack Dreyfus was an American original. If an institution is the lengthened shadow of a single man, his shadow is long indeed.

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Posted by on August 27th, 2013 at 9:20 am

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