A Century of Market Leadership

John Moody (1868 - 1958) was a self-taught reformer who had a strong entrepreneurial drive and a firm belief about the needs of the investment community -- as well as considerable journalistic talent. Relying on his assessment of the market's needs, John Moody & Company published Moody's Manual of Industrial and Miscellaneous Securities in 1900, the company's founding year. The manual provided information and statistics on stocks and bonds of financial institutions, government agencies, manufacturing, mining, utilities, and food companies. Within two months the publication had sold out. By 1903, circulation had exploded, and Moody's Manual was known from coast to coast.

When the stock market crashed in 1907, Moody's company did not have adequate capital to survive, and he was forced to sell his manual business.

John Moody returned to the financial market in 1909 with a new idea: instead of simply collecting information on the property, capitalization, and management of companies, he now offered investors an analysis of security values. His company would publish a book that analyzed the railroads and their outstanding securities. It offered concise conclusions about their relative investment quality. He expressed his conclusions using letter rating symbols adopted from the mercantile and credit rating system that had been used by the credit-reporting firms since the late 1800s. Moody had now entered the business of analyzing the stocks and bonds of America's railroads, and with this endeavor, he became the first to rate public market securities.

In 1909, Moody's Analyses of Railroad Investments described for readers the analytic principles that Moody used to assess a railroad's operations, management, and finance. The new manual quickly found a place in investors' hands. In 1913, he expanded his base of analyzed companies, launching his evaluation of industrial companies and utilities. By that time, the "Moody's ratings" had become a factor in the bond market. On July 1, 1914, Moody's Investors Service was incorporated. That same year, Moody began expanding rating coverage to bonds issued by US cities and other municipalities. By 1924, Moody's ratings covered nearly 100 percent of the US bond market.

Moody's continued to publish and monitor ratings during the Great Depression, when bond default rates skyrocketed but few bonds highly-rated by Moody's missed payments. In the 1970s, Moody's ratings were further extended to the commercial paper market and to bank deposits. Also in the 1970s, the major rating agencies including Moody's began the practice of charging issuers as well as investors for rating services. The rationale for this change was, and is, that issuers should pay for the substantial value objective ratings provide in terms of market access. In addition, it was recognized that the increasing scope and complexity of the capital markets demanded staffing at higher levels of compensation than could be received from publication subscriptions alone.