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Business: Change and Turmoil on Wall Street

28 minute read

MOST outsiders would assume that Wall Street, the citadel of American capitalism, is a model of efficiency and sound management. It is nothing of the sort. In fact, Wall Street is an avenue filled with managerial cracks and potholes. Nothing has so plainly revealed its weaknesses as the recent steep decline in stocks, which has cut almost $200 billion from the value of shares listed on the New York Stock Exchange alone. Simultaneously with this decline, and largely as a result of it, the U.S. securities system is undergoing a series of fundamental changes that are bound to affect all investors.

The changes are being championed by a new generation of leaders in the industry who are highly critical of the way in which its basic power groups work and serve the public. On Wall Street, as elsewhere in American life, self-criticism is in style these days, and no institution is any longer considered sacred. The stock market’s critics are speaking up against mismanagement in brokerage houses, politicking in stock exchanges and the practices that led to the speculative spree of the mid-1960s —and the hard fall that followed. This new group differs considerably from the men who rose to power in the market in earlier times. Today’s leaders are fairly young—many are in their 30s and 40s —as well as politically iconoclastic and socially concerned. Skeptical of the conventional wisdom, they are questioning not only the mechanism of the market but the uses to which capital is put.

The securities business is so widespread and diverse that no man can speak for all of it. But few in the industry wield as much influence as 43-year-old Howard Stein, who is both a leader among the younger critics and a top executive in a branch of the business that is becoming increasingly powerful in the market. As president and chief executive of the Dreyfus Corp., Stein heads a complex of investment funds that manages more than $2 billion of “O.P.M.”—other people’s money. Among the five investment companies for which he serves as prime strategist is The Dreyfus Fund, the second largest of the nation’s 800 mutual funds (after Investors Mutual). It is probably the best known of the funds, partly because of its famous symbol, the Dreyfus lion, which stalks out of a subway and leaps languidly onto a pedestal in television commercials.”*

Stein is a slender, relaxed man whose interests range far beyond matters of money. He was an outspoken critic of the Viet Nam War long before dovishness became fashionable in the Wall Street community. Largely because of his antiwar stand, he took a six months’ leave of absence in 1968 to become chief fund raiser for Senator Eugene McCarthy’s political campaign. Now he is helping to plan John Gardner’s drive to form a nonpartisan national citizens’ lobby that would act to reshape national policies and priorities. Last week Stein made a quick trip to Northern Ireland to see for himself one of the world’s trouble spots; while there he moved through barbed-wire barricades to talk with Catholic priests, Protestant militants and heavily armed British soldiers. Like almost every knowledgeable investor, Stein realizes that trouble anywhere in the world has an impact on U.S. securities markets. He argues that the effect is larger than it used to be because television makes distant disputes seem closer to home.

Stein likes to keep close watch on social problems and political currents in order to sense more keenly how they may affect movements in the market. “In the late 1960s,” he says, “we had a market that rose to a peak because it was built on speculation and hope. Then came the big decline, and millions of people got hurt. Today there is a return to conservatism in America. A majority of people cherish the forms of this society, but are fearful that they will be destroyed. Today they see nothing to make them hope. We are still in the Viet Nam War, and we still have social unrest.”

It is a rare American who has not been hurt—directly or indirectly—by the market’s long fall. In a sense the decline has hit harder than that of the Great Depression: only about 1,500,000 Americans owned shares then, compared with 31 million now. All together, 100 million Americans have some stake in the market through their holdings in pension funds, profit-sharing funds, variable annuities and endowment trusts. Even people who do not have such interests have been damaged. The stock drop has affected the psychological climate —and thus the spending plans—of all kinds of businesses. Moreover, as stockholders have felt the pinch, the decline has brought hard times to enterprises as varied as restaurants, nightclubs, gambling casinos, summer-rental brokerages, yacht builders, jewelers, liquor stores and fur shops.

Double Pinch

The market will certainly rise again. It always has. In the later stages of past bear markets, fortunes have been made by investors who had patience, courage—and some cash. Last week, however, portents of any substantial rise in stocks were as hard to find as cheerful brokers. The Dow-Jones industrial average fell 15 points to 711, and new lows for the year were set by many faded glamour stocks, including American Hospital Supply, Avon Products, Walt Disney Productions, Iowa Beef, National Cash Register, Telex, Texas Instruments and Xerox. At week’s end the Government reported signs that the economy was picking up: industrial production and personal income climbed in July, pretax corporate profits barely declined at all in the second quarter and laggard statistics showed that the gross national product rose a bit more than had been calculated earlier. The Dow-Jones average reacted by registering a feeble 31-point gain on Friday.

It will take more bullish news than that to revive the spirits of Wall Street’s professionals, who are in a particularly severe recession. Unlike most other segments of the economy, the securities business is suffering simultaneously from a decline in sales volume and a drop in prices. The result is that brokers’ revenues have shrunk dramatically. The New York Stock Exchange estimates that most of its member firms can break even only when average daily trading volume on the Big Board reaches 12 million shares; so far this year, volume has averaged only 10.7 million shares.

On Manhattan’s Wall Street, Chicago’s La Salle Street, San Francisco’s Montgomery Street and in the many other financial districts of the nation, pay cuts and wholesale layoffs are the order of the day. Top brokers, who once earned $100,000 or more a year, are down to a small fraction of that. Quite a few junior customers’ men have left the business, bitter and disappointed; some are now driving taxis, pumping gas or lining up for unemployment checks. One former margin clerk for a brokerage house was recently sighted on Wall Street getting a ticket from a policeman for illegally selling men’s shirts out of a carton.

In all, 139 brokerage houses have failed or have been forced into shotgun mergers. Last week the big Dempsey-Te-geler & Co. was ordered into liquidation by the New York Stock Exchange. Exchange officials disclosed that nine other firms are so near failure that they have stopped or may soon be forced to stop doing business with the public. In addition to Dempsey-Tegeler, four are formally being liquidated: McDonnell & Co., Gregory & Sons, Baerwald & Deboer, and Amott, Baker & Co. The other five—Meyerson & Co., Fusz-Schmelzle & Co., Blair & Co., Orvis Bros. & Co., and Kleiner, Bell & Co. —are headed for liquidation because of capital problems. A couple of the biggest firms in the business, while not in danger of extinction, are widely reported to be losing roughly $1,000,000 a month.

As a major mover in the securities markets, Howard Stein is deeply concerned by Wall Street’s difficulties. He has brought together, and acts as quarterback for, a group of seven leading moneymen, who travel from many parts of the U.S. to meet regularly, usually at Dreyfus’ Manhattan headquarters, to discuss inflation and the economy, the problems of the brokerage business and the future structure of the exchanges. Among the men who attend the four-hour sessions are Thomas Reeves of Investors Diversified Services, Wellington Fund’s John Bogle, Mellon Bank’s Lloyd Pederson, InterCapital’s Fred Stein (no kin), and Kidder, Peabody’s Ralph De-Nunzio, who is vice chairman of the New York Stock Exchange.

Rivals for the Dollars

Stein has often voiced criticism of the major forces in the market. He condemns the amateurism and greed of brokerage-house partners who took out virtually all the profits when times were good and who now have difficulty surviving when times are glum. He maintains that the New York Stock Exchange has followed rather than led the pace of change and modernization. He holds that the Securities and Exchange Commission, partly because it is understaffed, waits too long to attack some obvious problems in the securities business.

Many of the problems that Stein and others deplore have been caused at least partially by the rise of the mutual funds and other institutional investors. The funds have grown from almost nothing before World War II to $39 billion in assets today. The mutual funds rank right after the pension funds as the biggest institutional shareholders. Though brokers derive some income from selling mutual fund shares, the funds nevertheless represent a threat not only to brokerage houses but also to savings banks and savings and loan associations. All are competing for the dollars that Americans have to invest or save. The institutions are taking an increasing share of the portion that goes into common stocks: they now own 35% of the shares on the New York Stock Exchange and account for 60% of the dollar volume of the exchange’s public trading, up from 40% a decade ago. Late in 1968, under pressure from the Securities and Exchange Commission, brokerage houses reduced the commissions that they charge on trades of more than 1,000 shares. That reduction helped the institutions but later tightened the cash squeeze on brokerages.

In addition, the mutual funds—notably the newer, smaller “gogo” funds —were largely responsible for the dazzling but dangerous cult of “performance.” This notion, which began taking root in 1965, was that aggressive institutions could wring more profit from a rising market by swinging in and out of glamour issues than by holding on to solid stocks. Trading volume—and brokers’ profits—rocketed. Go-go funds made great leaps, and even some staid trust officers in banks joined the stampede to buy and sell. According to a study released last week by the Twentieth Century Fund, the trading policies of mutual funds contributed to “excessive” price swings among small, speculative issues of stocks.

Unable to handle all the trading volume. Wall Street was swamped by its own prosperity. From early 1968 through May 1970, the stock exchanges shortened their hours to help overburdened back-office staffs cope with a mountain of paper work. The snarls persisted, delaying the transfer of stock certificates between buyers and sellers and creating a furor. Convinced that the trading bonanza was permanent, many brokers began an orgy of expansion, opening up costly new branch offices that they are now busy closing. “There was a bit of collective insanity in those days,” recalls Stein. “The market lost its reason and almost lost its future.”

Disappearing Stock

Stein not only resisted the temptation to put The Dreyfus Fund into the performance game, but publicly warned that the game could lead the stock market into a spin. He also questioned the fashion for conglomerates long before the stock market marked them down. Despite such foresight. The Dreyfus Fund has not escaped the ravages of the bear market. Direct comparisons between mutual funds and stock market averages are hard to make because the funds include the value of reinvested dividends, while the averages do not. By these varying measures. The Dreyfus Fund declined last year but still did better than all the stock market averages except the Standard & Poor’s 500. So far this year The Dreyfus Fund has fallen 20%, or more than the Dow-Jones industrial average (down 9.69%), the Standard & Poor’s 500 (down 16.27%) and the N.Y.S.E. Composite (down 18.77%). Still, the fund has fared better than the American Exchange average (off 22%) and than mutual funds as a group (off 23%). Stein contends, quite naturally, that mutual funds should be judged on the basis of their long-term record. In the past ten years The Dreyfus Fund has risen 130%.

While the major mutual funds have suffered setbacks lately, their problems seem transitory compared with those of the brokerages. Men who have entered the brokerage business from other fields have been shocked by the mess on Wall Street. Archie Albright, a former executive vice president for Stauffer Chemical who is now the president of the underwriting branch of recently merged F.I. du Pont, Glore Forgan, says: “These guys got carried away during the boom years. Nobody had the kind of internal cost accounting to tell what fast expansion would do to profits. Then everybody started buying computers to handle the paper work. In the past, when times became tough, Wall Street firms could always lay off their clerks. But how do you lay off a computer?”

Careless and poorly trained clerks have cost brokerage houses vast sums of money by losing or misplacing stock certificates. Incredible as it may seem, hundreds of millions of dollars worth of stock has simply disappeared. These losses are called “box differences” because the shortages are discovered during an audit of the strongboxes in which securities are stored. In order to make good to their customers, brokerages have to buy new stock in place of the lost shares. The high cost of replacing the box differences has contributed to the downfall of several firms and has strained many others.

On top of that, many of Wall Street’s capitalists do not have enough capital. To provide a cushion for investors and creditors in case a firm fails, the New York Exchange requires every member firm to have at least $1 in net capital for every $20 in liabilities. One big problem is that brokerage firms often have part of their capital in securities, which can plunge in value when the market drops. The securities are often borrowed from outside investors, who are paid a 10% annual fee for their use.

A firm with this kind of capital can quickly tumble into serious difficulty. Hayden, Stone, for example, borrowed nearly $18 million in stock from some Oklahoma investors last March. Some of it consisted of shares of Four Seasons Nursing Centers, which later filed for bankruptcy. Hayden, Stone’s capital has been further reduced by declines in the value of other borrowed shares. The firm has chopped salaries, cut back its staff and branch offices and sought refuge by negotiating for a merger with Walston & Co. Before that deal is consummated, Hayden, Stone may have to find an estimated $6,000,000 to pay off certain loans.

Similarly, Dempsey-Tegeler arranged last March to borrow $7,000,000 from Denver Oilman John McC. King. The loan consisted of stock in King Resources Co., which explores and develops oil and gas prospects. As those shares plummeted, Dempsey-Tegeler fell apart. Last week John King was also in financial trouble, and he resigned as chairman of both King Resources and the Colorado Corp.

To bail out floundering brokerages —and back up its boast that, since the 1930s, “no customer has lost money through the failure of a member firm” —the New York Stock Exchange has raised a rescue fund by assessing its members. When a brokerage fails, the exchange draws on the fund to pay off the creditors, mostly bankers. Brokerages commonly use customers’ margin stock as collateral to support bank loans. The danger to investors is that, if a firm fails and the exchange’s trust fund runs out of money, banks will hold on to the stock of the margin customers.

Lately, rescues have reduced the Big Board’s trust fund from $55 million to $24 million, and most of what remains may be needed to aid the ten firms currently facing liquidation. Leaders in the securities business have been pressing Congress to set up a $150 million trust fund, financed by the industry, with an additional $1 billion line of credit at the U.S. Treasury. As proposed, the fund would be dominated by the industry, not the Government. Partly because of that provision. Congress seems in no hurry to come to the aid of Wall Street.

The Big Board is also beset by internal politics and bickering. One prominent securities analyst denounces the Big Board as a “Byzantine, conspiratorial Kafkaesque monster.” The owners of the exchange, the 1,366 members who hold a seat entitling them to transact business on the exchange floor, have varied and often conflicting interests. When confronted by almost any proposal for change, the 33 governors divide into several factions, and the splits slow the pace of change that Exchange President Robert Haack is trying to bring about. Says Haack: “My job is to move these people into the 21st century.”

The funds can be influential in promoting change, if only because they are among the biggest customers of both the stock exchanges and brokerage houses. One reason for the success of mutual funds is that brokers and bankers also sell fund shares. Dreyfus markets its shares entirely through brokers—and pays them a handsome 81% commission. That gives Howard Stein considerable clout when he says: “The big issue is whether the financial community in general, and the stock exchanges in particular, are going to remain clubs. We have to open them up, encourage new blood and turn them into institutions that respond to public needs.”

“I Was Insufferable”

Stein entered the securities business in a roundabout way. Born in Brooklyn to parents in what he calls “less than affluent circumstances,” he moved to Manhattan as a child and grew up in a flat over the Stage Delicatessen on Seventh Avenue. At the age of five he began to practice the violin and almost took up a career as a musician. His formal schooling was a sometime thing: he spent eight to ten hours a day playing the violin and three hours a week with a tutor who came to the Stein apartment. “I learned a little math and I read a fair amount,” he recalls. Only after a truant officer discovered him did Stein enter a vocational high school; it simply bored him. He dropped out, but won a scholarship in music at Manhattan’s Juilliard School. Later Stein wrote music and produced a few off-Broadway shows on shoestring budgets. To make money he sold librettos at the Metropolitan Opera House. After ballet performances he sometimes bought back programs from departing customers and resold them at later performances, netting a small but perhaps significant capital gain. When he finally decided that he was not destined to become a great violinist, he put his fiddle into a closet and permanently gave up playing.

At 23 he got his first real job, at 75¢ an hour, loading steel onto trucks for a metals firm; he rose to become personnel manager for the same firm at $100 a week. “I got to know the executives,” Stein says, “and they were always talking about the stock market. I didn’t know what it meant, really, but I became interested.” He began to hunt for a job on Wall Street, but without success. “They wanted salesmen, and they said I wasn’t a salesman.” Through a friend he was finally hired as a trainee at Bache & Co., where he soon noticed that letters requesting sales brochures were piling up unanswered while salesmen concentrated on person-to-person contacts. By getting in touch with the writers, Stein built a rich commission business. “I was insufferable in those days—arrogant, ambitious and aggressive,” he recalls. “Though I was making about $50,000 a year, Bache didn’t let me rise fast enough.” In 1955, Stein quit and joined Dreyfus.

At that time, The Dreyfus Fund was a midget, with assets of only $2,300,000. Stein earned a reputation as a shrewd stock analyst, helping to steer the fund into rapid risers, including Polaroid. Within a few years he was chief assistant to Jack Dreyfus Jr., founder of the fund. In 1962, at 35, Stein suffered a mild stroke, but recovered with no aftereffects. When Jack Dreyfus retired five years ago to enjoy his multimillions, he turned control of the business over to his protege, the ex-violinist.

For managing the Dreyfus Corp., Stein is paid $160,000 a year; he also owns 5% of the corporation’s stock, a holding now worth about $2,000,000. He runs his empire in a muted, loosely organized style. Visitors often find him sprawled in an armchair in his corner office on the 35th floor of Manhattan’s General Motors Building, his shoes off while he studies charts. Stein’s informal clothes, casual manner and diffident speech are outward manifestations of a state of mind. He soaks up information, but prefers getting it from people rather than books. An unschooled man with great gaps in his knowledge, he is never afraid to admit ignorance: instead, he asks openly for instruction. A less confident man might bluster through by pretending knowledge — or by denying the value of subjects that are closed to him. Today, having reached the top, Stein can afford to be modest.

He has an easy, bantering, first-name relationship with most of his coworkers. When he recently pressed Executive Vice President Jerome Hardy for some information, Hardy replied with a laugh:

“For Christ’s sake, Howard, get off my back.” Stein and Hardy are now con spiring to persuade women employees to wear pantsuits in the office to fight the onslaught of the midi. Hardy’s next plan is to wipe out neckties at the Drey fus headquarters. “By fall,” he says, “we’ll be wearing turtleneck sweaters.”

What the Charts Say

Stein manages to spend most week ends at his 90-acre country spread at Cross River, N.Y., in upper Westchester County, where he lives with his second wife Janet, their two children and her three children by a previous marriage. (He also has a town house on Manhattan’s Upper East Side.) He begins a typical workday by reaching the office, via his chauffeured Cadillac, by 8 a.m. Often he works until midnight. He spends so much time in offices, cars and planes, and so little time outdoors, that he almost never wears an over coat, even in midwinter. In the office he is almost always on the phone, speaking with financial executives, economists or prominent politicians. He studies practically none of the research reports churned out by Wall Street’s securities analysts — which he claims have value mainly in a bull market—but colleagues consider him to be “the best chart reader in the business.”

Though charts are only one of many sources for Stein—and securities men, in any case, are divided about their predictive value—the floor of his office is usually cluttered with enormous books of them, made up daily. During and between phone calls, Stein riffles through the charts, making occasional notes. “They speak! They speak!” he exclaims. He looks for “perkers”—stocks showing a slight rise after a steady fall—as possible shares to buy. He also keeps an eye out for “cresters”—shares that have turned down after a precipitous rise —as possible short sales for The Dreyfus Leverage Fund. If a stock has a rise on heavy volume, he figures that some people—possibly company insiders —know something that he should know. He marks the stock’s chart with an X, and then his analysts quickly make calls upon officers of the company. Sensing in the squiggles the moods and hopes of people who will influence tomorrow’s markets, Stein also reads the lines of his charts in emotional terms. What do the charts tell him now? Says Stein: “There is a return to basic values in America.”

Stein looks for reasons why the fortunes of whole industries should rise or fall, perhaps because of technological developments, a social trend or Government policy. The investment tactics are worked out at Monday morning meetings of the 14 men and one woman who handle securities research. The Dreyfus Fund has profited by investing in American Express, Texas Gulf Sulphur and even Penn Central, which it sold well before the railroad’s bankruptcy, but it inevitably picks some losers. Among the current ones: Ampex, INA Corp. and Teledyne. Recently the analyst group concluded that well-managed airlines with profitable route structures should soon begin to climb again in the market, because air travel should increase after the economic slump ends. Last month The Dreyfus Fund picked up 600,000 shares of Northwest Airlines at 141, only ½ point above the 1970 low; since then the stock has climbed 3½ points, producing a quick paper profit of $1,950,000. Nonetheless, the fund still has $300 million, or 17% of its assets, in cash, awaiting more solid evidence of a market upturn.

Money-laden institutions, Stein contends, must find innovative ways to finance the nation’s needs. With that in mind he has moved into the housing field. Last year the Dreyfus Corp. bought a Detroit home-building concern, which will soon start construction of about 800 low-income units in the federally backed new town of Jonathan, Minn. Though some of Stein’s earlier invest ments in building-materials stocks have done poorly this year, he is convinced that the pent-up demand for shelter will eventually lead Washington to pro mote another housing boom.

Fewer Brokers, Higher Commissions

In one innovative step, the Dreyfus Corp. and Buffalo’s Marine Midland Bank this month formed a jointly owned investment advisory service to handle the bank’s pension, profit-sharing and en dowment accounts. There is considerable logic in the arrangement: the bank has customers, and the fund has more tal ent available for investment analysis.

Stein expects that other banks and mutual funds will also tie together in such ventures. Not too seriously, he proposes a corporate symbol for the Dreyfus-Marine Midland company: the sea lion.

The innovations in large institutions like Stein’s Dreyfus Corp. are only part of a much broader wave of change that will make Wall Street a very different place in the 1970s. One significant shift that has already begun involves the fate of the mutual funds’ prime customer, the small investor. During the past two decades, brokers and stock exchange officials have exhorted secretaries, janitors and just about everybody else to “buy a share in American business.” But the small investor is no longer profitable for most brokerage houses. Though it is riskier, it is cheaper for individual investors to buy stocks directly from a broker than through investment in a mutual fund. Moreover, brokers have larger, costlier office staffs. Salesmen at some firms have been instructed to turn down orders unless the commissions run to $20 or more. In the near future the brokerages are likely to raise their commissions on small trades—they have already tacked a $15 surcharge on to orders for fewer than 1,000 shares—and to fold many more branch offices that cater to “the little man.”

Economic pressures will also force more mergers among brokerages. Instead of the present 250 sizable brokerage companies, the U.S. by the end of the decade may have about 100. The securities business will probably benefit because weak firms will be squeezed out and the strong will survive. But investors will have less choice. More and more business will be transacted by the larger, wealthy institutional investors.

In view of the many obvious needs of the nation in the 1970s, the securities business will have to raise more capital—and channel it more efficiently —than ever before. If Wall Street is to do that job well, it must get its own houses in order. Just about every expert in the securities business believes that brokers will have to arrange better, more reliable sources of internal financing. Unless the exchanges do so first, Congress may well insist that brokerage firms stop the practice of borrowing stocks and listing them as “capital.”

A Bet on Technology

A number of moves are under way to reduce the brokers’ costs of doing business. After some early foulups, the computers are beginning to help the brokerages to reduce their expensive paper work. The old-fashioned engraved stock certificate, which was one cause of the costly “fails” that jammed up back offices, is expected to be phased out entirely in the 1970s. It will be replaced by electronic entries in computers, and investors will get a monthly printout of their holdings. To eliminate an expensive overlap of functions and to reduce errors in transactions, the New York and American stock exchanges are planning a combined clearinghouse and a joint automation system that would channel orders to the floor. The Big Board has invested more than $1.000,000 in a computerized information network called the “Block Automation System.” It is not a trading mechanism, but a time-saving way for subscribers—122 brokers and 59 institutions—to advise one another of the stocks that they want to buy and sell.

In general, however, the Big Board has fallen considerably behind in its schedule for embracing automation. One reason, critics insist, is the ineptitude of some members of its bureaucratic staff. Another is dwindling revenues: the exchange’s income is directly tied to trading volume. Nobody feels the urgency for change more keenly than President Haack. For example, he agrees with critics who say that floor specialists should be put under closer scrutiny by the exchange and should be obliged to have more capital.

The powers of the major exchanges are likely to diminish because the institutional investors are expected to do an increasing amount of their trading through other sources. In an important shift aimed at saving money, some institutions have been trading listed shares through the “third market” of dealers who are not members of the major exchanges, and who are thus exempt from the exchanges’ minimum commission rates. The Dreyfus Fund has saved its shareholders $1,200,000 in commissions by moving the buying and selling of some securities onto regional exchanges. Institutions are also making direct trades with one another in the so-called “fourth market,” which bypasses brokers and exchanges altogether. The Justice Department questions whether the whole system by which exchanges set commissions violates the laws against price fixing.

Market insiders are talking about the possibility that one great, national exchange will in time take the place of the many that now exist. As a first step, the New York and American exchanges may merge entirely in the next few years. However farfetched it may seem, some Wall Streeters argue that a combined exchange should become a nonprofit foundation: members would not buy seats but earn them through competitive examinations.

The changes can come none too soon because, in the years just ahead, the stock market will be called upon to play a different and more important role than in the years just past. There will be a renewed rush by corporations to finance their expansion by issuing more common stock. In the 1960s, companies were able to get most of their financing through retained profits, bond issues or bank loans, which were fairly cheap and easy to obtain. Executives were reluctant to float stock because it would dilute their earnings per share. “And in those days,” says Stein, “earnings per share were a sacrosanct criterion of executive skill.”

A More Sensible Market

Prosperity and rising profits then inspired a strong demand for stocks, but the supply was limited. Prices went through the roof. “The enormous rise,” insists Stein, “had less to do with a sober assessment of a company’s performance than with the sheer shortage of stock. People were not buying companies; they were buying the market.” That situation is not likely to recur, because today’s profits are modest, corporate debt is high and interest rates are steep. The switch away from debt issues and into equity issues has already begun. Last year U.S. companies put out a record dollar volume of new stocks; this year another record is expected.

Wall Street’s professionals generally agree that investors will have to choose stocks more carefully than in the recent past. Very few thinly held stocks of small companies are likely to double and quadruple in a short span of time, as many did just two or three years ago. “When you look at the charts,” says Stein, “you can tell right away that the buoyant stocks today are those of companies with really sound records and sound prospects. This means that the market is building a solid, sensible base. That’s healthy. It would be too bad to see another boom built on hot air.”

-For the 20-second color-television commercial, an elaborate mock subway entrance was built on an empty Hollywood lot, and the lion performed on it. The rest of the lion scene was played in front of the image of a genuine Wall Street background, filmed earlier and projected onto a screen behind the animal. The lion, named Major, is the understudy of the cross-eyed lion in the Daktari series.

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