How James Cloonan Championed The Small Investor Before Robinhood

The AAII founder modestly hoped to get 10,000 members when opening the American Association of Individual Investors in 1978. But he ended up helping more than 2 million. And in hindsight, it’s no surprise why.


James Cloonan’s driving force was helping the small investor take on — and beat — the Wall Street establishment. His passionate verve for fighting for the individual investor helped the AAII make millions of people more successful and escape paying bloated fees. His drive helped investors decades before the free trading commissions championed by Robinhood and other online brokerages. And those joining Cloonan’s revolution found themselves more educated and well off.

The AAII founder’s organization and newsletter put people in control of their own retirement planning. Those willing to learn found greater success than many of those blindly trusting expensive brokers to do it for them. Cloonan, who died in 2020 at age 89, served as the AAII’s first CEO and its chairman until his retirement in 2018.

And his imprint on individual investors is large.

AAII Founder: Find Your Fight

Fighting for the little guy ran in Cloonan’s family. His father, Bernard “Barney” Cloonan, was one of Eliot Ness’s “Untouchables,” the storied U.S. Treasury agents who went toe-to-toe with the mob in Prohibition-era Chicago.

Cloonan himself earned a bronze star for service in the U.S. Army during the Korean War. He served as an infantry platoon leader after volunteering while a student at Northwestern University. But postwar, Cloonan fought for the little guy using words and ideas. At heart, he was a teacher. And he jumped at any opportunity to help.

Back in the early 1990s, reporters for the Allentown (Pa.) contacted Cloonan. They looked for his help on a series of articles teaching readers how to make sense of the stocks section in the newspaper’s business section. At the time, it was a knot of tables and dense data. Chuck Jaffe, now host and creator of the Money Life With Chuck Jaffe financial radio show and podcast, was business editor of the Call. His team called Cloonan for help.

“We were a place nobody had ever heard of,” Jaffe recalled. “We were a small newspaper. Talking with us wouldn’t necessarily get him anything. But when my reporters called to get his descriptions of how to decode this or that table, he was incredibly generous with his time. He was dedicated to educating investors.”

Focus On Helping Your Customers

If you’re an individual retail investor, you likely know of the AAII. It’s a nonprofit organization devoted to educating investors. It provides investing and financial planning guidance to people who want to run their own money. The AAII now has 158,355 members.

But when starting out, Cloonan hoped 10,000 people might join AAII. In its peak membership year of 2017, 170,000 members swelled the group’s ranks. Over the years, more than 2 million people belonged to AAII at some point, says Harry Madorin, Cloonan’s son and current AAII vice president, operations.

Seek Practical Ways To Help Investors

Cloonan immediately took to teaching. With an MBA from the University of Chicago and Ph.D. in marketing and quantitative methods from Northwestern University, Cloonan taught marketing at Loyola and DePaul universities. He also put his knowledge to practical use.

Chicago is home of the Chicago Board of Trade, a commodities exchange, which also offers options and futures contracts. Cloonan was an avid investor in convertible bonds, stocks and put and call options.

He eventually formed a brokerage, Heinold, O’Connor & Cloonan, partnering with a commodities firm that wanted to get into the stock options business. The experience reinforced his concern about how little research was available to individuals. “During my experience there, I realized there was nothing to back up the individual investor,” Cloonan said in 2017.

He soon left the brokerage and returned to teaching.

Find Your Opportunity Like The AAII Founder

A watershed event then occurred for the AAII founder. The era of high, fixed-rate brokerage commissions ended May 1, 1975, at the command of the Securities and Exchange Commission. Known as “May Day” on Wall Street, that date ushered in negotiated commissions that were much lower. The event triggered the birth of discount brokerages and shook up the industry.

Cloonan saw his potential audience swell in size. “All of a sudden, with the decline in fixed commissions, individual investors came into the market,” said John Bajkowski, today’s AAII president. “You had discount brokers. But investors had to do their own research. And they didn’t have a lot of resources to turn to.”

AAII Founder: Help Investors Navigate High Trading Costs

Prices were still a problem too. In 1975 prior to May Day, if you bought 100 shares of a stock trading for 26, in Wall Street’s then-cartel system, the commission would have been at least a staggering $54.34, according to research by Columbia University finance professor Charles Jones. Today? Customers at discount brokers like Robinhood, Fidelity and Schwab pay zero commission.

As for mutual funds, in 1979 the median front-end sales load, or commission, charged by mutual funds was 8.5%, according to the SEC. Now, 84% of the funds tracked by Morningstar Direct charge no front or back loads, based on their oldest share classes. The other 16% average a maximum front load of 4.69%. In 1978, Cloonan identified with other individual investors and shareholders, beset by high costs and unhelpful brokerages. “He saw himself in them,” Bajkowski said.

One aid he could provide was to help them find lower-cost funds.

Provide Information For Your Customers: AAII Founder

Cloonan spotted a second area where shareholders needed help. Brokerages fed research about investment opportunities to institutional investors before giving individual investors a shot at the information. “Jim was especially looking at making information widely available to individual investors,” Bajkowski said.

How to do it? Helping individual clients through his old brokerage was too slow. Offering instruction through the classroom did not reach enough investors fast enough either. Seminars? They seemed to be the realm of hucksters promoting get-rich-quick real estate schemes.

In brainstorming about how to reach more investors with objective research, Cloonan’s chief sounding board was his wife Edythe (“Edie”). Finally, in 1978 he took the plunge, forming the AAII.

“Cash flow was a problem because I didn’t want to get money from anyone who would be perceived as impacting our independence. We wanted to make it grow from a grassroots basis,” Cloonan told Charles Rotblut, editor of the AAII Journal, in November 2017. “That slowed us initially. My daughter Carrie, who also volunteered her time, even lent $5,000 from her college fund to speed things up.”

Stay Open To New Ideas Like The AAII Founder

Cloonan wasn’t just a teacher. He was also an ideal student. He learned from the market.

One key view that evolved for the AAII founder was the risk posed by volatility. “I have come to believe, now, that risk is immaterial for the long-term investor, at least risk as we think of it,” he said in 2017. “The real risk is not whether the stock market’s going up or down; it’s whether you’ll have money when you need it, for retirement or education or whatever other purpose you’re going to use it for.”

Know That Improvement Will Continue

The AAII founder knew his invention and mission is a work in progress. He sought to find even broader appeal. In a 2017 interview, Cloonan expressed hope more people with lower incomes or education plus younger people would learn to invest on their own.

And as interest in online investing and low-cost ETFs boom, it’s fair to say the AAII founder’s ideas certainly planted the seeds for much of the younger generation’s interest in stocks.

AAII Founder James Cloonan’s Keys

  • Founder of the American Association of Individual Investors (AAII).
  • Overcame: Brokerage industry pricing and access practices that made it hard for retail investors to achieve positive total returns on investments.
  • Lesson: Short-term volatility is “immaterial for the long-term investor. The real risk is not whether the stock market’s going up or down; it’s whether you’ll have money when you need it, for retirement or education or whatever other purpose you’re going to use it for.”

Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and actively run portfolios that consistently outperform and rank among the best mutual funds.


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