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A Strong Stock Market

The increase in the margin rate from 50% to 70% was not anattempt to stem any rampant speculation on the part of thepublic—actually the market seemed technically quite strong,with public participation essentially dignified—but rather anattempt by the Federal Reserve Board to preserve the soundunderpinnings that existed in the market. Naturally, such amove had a momentarily chilling effect upon prices but if theFRB had been preoccupied with undue speculation, the increase might have been to the 80% oreven 90% level. Such an increases in the margin rate is a confirmation of a strong stock marketand since 19…,such increases have resulted in interim market highs over twelve months later.Obviously, there could be no guarantee that this would once again be the case, but if history isany guideline—and if business and corporate earnings were to continue on the samecourse—continued optimism over the outlook for the stock market would seem more prudentthan pessimism.

The margin increase underscored the good rise that stocks had enjoyed for the previousyear—and the fact that a 50% rate was maintained as long as it was pointed up the fact that therise was mainly conservative in that it was concentrated in the blue chips for the most part. In pastInvestment Letters we have voiced the thought that speciality stocks could outperform thegeneral market from this point. We continue to believe that this could be the case. For example,steel stocks tend to sell at certain fixed price/earnings ratios. Below a certain ratio they areconsidered good value—above a certain ratio, overpriced. If a company produces a uniqueproduct it is far more difficult for market analysis to place a numerical ratio upon the company’searnings. We have also contended in the past Letters that the stock market reflects masspsychology as well as the business outlook. When investors—both the public and theinstitutions—are nervous and pessimistic they definitely hesitate to buy stocks: they seek lowprice/earnings multiples and high yields. These same investors—when they are in an optimisticframe of mind—become for less preoccupied with yields and more wiling to pay a premium(highp/e multiples) for accelerated growth. If the public’s attitude towards the auto industry is anymeasure, then this period seems to have been one of optimism.

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专业八级英语考试阅读经典素材汇总