Wall Street Week with Louis Rukeyser; 0106

Wall Street Week blind Friday November 12. Your host for Wall Street Week it's Louis Rukeyser. Our panelists are Frank have a yellow card or Rambo and Lou Waters this evening special guest Louis Gilbert that even through guys are those Wall Street Week. And it's nice to see you. Well one thing's for sure and that is that somebody is crazy. The experts keep going up up up and the markets keep going down down down. President Nixon for a Phase 1 freeze doesn't end until tomorrow night. But the stock market has spent the entire week melting like springtime and I am chick. Obviously the experts in the market can't both be right and either the experts are going to have to get gloomier or the market more cheerful tonight will try to find out which will come first and we'll also meet the man who merits the title America's number one stockholder. Louis de Gilbert who has endured more than 2000 annual meetings in his efforts to make

corporations more responsive to the stockholders who own them. But first let's deliver the obituary on a truly deadly week on Wall Street that most closely watched indicator the Dow Jones Industrial Average graphically recorded the decline and fall with some notably horrific sinking spells on Wednesday and Thursday. That index of 30 big industrial stocks ended the week with a loss of more than 27 points to finish at eight hundred twelve point ninety four. Which happens to be its lowest level of the year and its worst since December 3rd 1970. It was definitely a week of black and blue chips. That's small comfort as was available for investors might be found in the fact that volume on both the New York and the American stock exchanges was down for the week indicating that the decline could be traced at least as much to buyers sitting on their hands as the sellers racing around in a great frenzy. But the news was pretty grim all around the New York Stock Exchange index would record the prices

of all the common stocks traded on that market fell nearly a point in the third to close at fifty point eighty five. While the American exchange index gave up point 44 to finish a twenty four point ten and the Nasdaq composite index of over-the-counter stocks dropped about a point and a half. And in the week Get One oh three point ninety one. All in all not exactly the finest week in history for investors small or large. And the question is why rank up yellow for the past few weeks you've been telling us that good times are just around the corner. Someone keep moving in the street. Sometimes thanks. I would guess the problem here is that we've left numbers behind and we're now dealing in psychology. There's a failure on the part of the business community to really see clearly what's going to happen over the next 12 months. Clearly economically the numbers are there. The economy is going to go up.

Maybe the Dow won't earn sixty eight dollars this year and next year nine hundred seventy two maybe to learn 65 maybe inflation won't be two to three percent it might be closer to three than the two but 972 is going to be a better year. But I think what the market is puzzled about is the market can always understand no controls they can understand explicit controls but they can understand the kind of controls we're talking about where all the veiling occurs each week. Well I want if we couldn't dispel some of the confusion Carter RANDALL You know another. Persistent optimist this fall. You're still persisting. Oh I'm persisting very much just low and one person said to day that when we hit bottom and I think we're very close when we hit bottom those people trying to buy at the bottom might find themselves in a terrible crowd at the bargain counter and may not be able to buy what they want at that time. Well Cora let me let me put it to you the other way around. We've come now the lowest point 1971 the lowest in the earlier year right. Is there any possibility that people will take this as such a gloomy

signal that it will go much lower. Yes this can be a rolling snowball that will keep on going. I don't think so the fundamentals are too good. The sharp pencils on Wall Street aren't able to come up with their estimates of earnings for next year yet but they will as soon as the price and wage situation is settled. Bill waters some people think we need a house. Where would you like that role. I don't think so I can't be a bear I'm a bull. I think today it showed a little bit of that that the market was down 8 points in mid session close to eight hundred around 8 0 6. And by the end of the day it was back up day 12 and change I think that I think we're very close to the bottom and I have to be able to. Well when you say very close to the bottom does that give you another 50 or 100 points to play with. I would say. My first time out I hate to put a number but I think 787 75 perhaps might be the bottom here. Your advice then to the ordinary person would be not to panic or to hang in there.

Absolutely. I think good news is coming and good news is coming soon. I hope you folks are right a lot of people do. It's time now in any event to move from the Big Three to the home furnace and warm up our weekly Wall Street exchange the portion of our program where we answer individual questions from our viewers about the world of stocks and bonds. Frank Caprio and this is Eugene Casey of Hempstead New York. I would like your assessment of the pros and cons of having her securities registered in what's known as street name in the same vein incidentally Robert map of Washington D.C. wants to know if he get his earnings reports earlier. If the stock were registered in his name instead of in street name. And why don't you begin by explaining to anyone who doesn't know just what street name means. Well the street name refers to when you leave your securities with a broker. As far as the company is concerned your securities are in the broker's name and all inquiries are all material dividends and so on go to the broker. The advantage to this is that you have

a safe keeping situation your securities are held in safekeeping by the broker. The second advantage is that you can sell buy and sell with a great deal of facility. You don't have to go down and endorser certificates and have the problem of carrying him back and forth. And the third is I would guess some advantage in having the securities down there and having the ability to move in and out very quickly without waiting. The disadvantage is that you do not get your annual reports your quarterly reports immediately. Many brokers are very lax in this regard. There is a delay sometimes two three four weeks. I have experience as I keep my securities in street name. You think it's an advantage or disadvantage that is not as important as the advantages that I gather. If you do it right. If you are a trader or if you trade say

four five or six times a year than I would think that you would be better off keeping your securities in street name and there's no danger here because they are insured by Sipek up to the Securities Investor Protection right up to $50000. OK so keep up to $50000 and right around that we have several letters from viewers who are either retired or plan to retire soon and they're anxious to get the highest income compatible with maximum security. Among them Mrs. James for any hope of Triangle Virginia who has $15000 to invest and this is Sylvia Schiff of Fort Lee New Jersey who has 25000. Both of them want investments to supplement their small pensions. What would you advise. I would advise that this particular point in time they buy a good quality relatively high yielding utility common stocks particularly if most of their income is of a fixed nature from pension systems they need a little bit of a hedge against future inflation. And that you think

gives them more than they get with corporate bonds for example. Well yes they can get a higher income slightly from corporate bonds but no chance of that income going up and not much chance of capital appreciation. And utility stocks are very low. OK but what if you're a stock broker What advice would you have for Martin Boyer of Montreal Canada. He's interested in capital gains on a $5000 investment he's willing to take what he called moderate risks. He wants to know if he should concentrate on four to six issues or spread his money around as many as 15. What do you think. 15 is too many Lou. He was beaten up by brokerage commissions right off the bat and he couldn't take a very meaningful position in 15 issues with $5000 investment. I think even 4 6 is too much. I would suggest two or three carefully selected issues in industries that have promise for gain over the term that he's looking for housing stocks here would be interesting. Rubber stocks would be interesting and maybe retail stocks although the multiples are high perhaps advertising stocks might be good in this kind of a

market. It's encouraging to have a broker discouraging people from turning commissions. Absolutely we've got to do what's right for him. OK. We'll be trading information on our Wall Street exchange again next week. So if you have any questions about the world of stocks and bonds just send them along to us here at Wall Street Week. No incentive for Public Broadcasting in Owings Mills Maryland 2 1 1 1 7. Once again that's Wall Street Week at the Maryland Center for Public Broadcasting in Owings Mills Maryland. 2 1 1 1 7. And if you don't take shorthand don't despair we'll be giving that address again in a moment. And for those of you who want instant access to our weekly words of wisdom we have our usual special offer audio cassettes of all the Wall Street programs taped from the live broadcast this season and last. Each cassette cost $5 and should actually be made payable to the Maryland Center for Public Broadcasting. Yes specify the name of the guest or the date of the program or send for a subscription form. If you're interested in long term dividends you can even subscribe for the entire year. All

34 programs in our second season our order form gives all the details for the cassettes or the order forms just right to get ready now. Wall Street Week Maryland's Center for Public Broadcasting in Owings Mills Maryland 2 1 1 1 7. Last time tonight that's Wall Street Week. Maryland's Center for Public Broadcasting in Owings Mills Maryland. 2 1 1 1 7. Now before we meet tonight's special guest we thought it might be edifying to let you in on some of the things Lewis Gilbert says he's learned in 40 years of studying corporate annual reports. It's a sort of translation guide for what can be the most baffling language this side of Serbo-Croatian for example says Mr Goh But when the annual report starts off and I quote Last year was a year of transition for the company you can be sure you know what that means. It means the company lost money when the transition is upward. You'd be surprised how fast the directors can learn to say it in English. Another kind of double talk cited by Mr Gilbert relates more to leap into linguistics. If the

auditor's report runs more than two paragraphs he says it's time to start asking a lot of questions about the accounting methods the company has decided to use. And finally this veteran observer says if the annual reports footnotes are in especially small print you can bet there's something going on that the directors would rather not have stockholders read about. Well those words of inspiration in mind let's go over now and meet tonight's special guest Lewis Gilbert. Hello less well-known I say I think you know these gentlemen do you see. Gilbert is then described as a self-appointed ombudsman for the nation the stockholders. He's been raising questions and raising hell medians of corporations since the early 1930s and he now travels about 100000 miles a year attending more than 100 such meetings for the past 30 years he and his brother John have published their own annual report as they call it

describing their activities over the past 40 years. Have those annual meetings become more or less responsive to stockholders. Oh there's been a great improvement in the average annual meeting we're getting fewer and fewer meetings held in Portland Maine in the dead of winter. The Delaware which is a delightful place for honeymoon but not the place for annual meetings and the rector's used to hide the meetings. Well naturally the more obscure. Like there was one company once met in Moab Utah and I'd bet you never even heard of Moab. Some are there every year. But seriously most managements today learning to rotate annual meetings around to meet as many shareholders as possible not of course there are always still some exceptions. Only a year ago I had one annual meeting the chairman of the board was so furious the type of questions that the stockholders were asking him and that he jumped up and he says I've never learned anything in an annual meeting and I'm never going to come to another one. Well all I could we all said to him that is quite obvious because

that's why the dividend was omitted. Well you've already made one interesting point that one test of a good annual meeting is one that is accessible to a number of stockholders. Are there any other simple tests like that that the ordinary stockholder can use to see whether he's getting a fair shake. Well yes and otherwise he should be very careful to read his post-meeting report after the annual meeting is over. If a company doesn't send out the post-meeting report why not. If the questions are omitted Why are they trying to hide what the questions were and what the answers what now more and more corporations are doing exactly what I'm suggesting sending these kind of post meeting reports and even transcripts on request. It certainly would be fair to describe you as a small investor since you did start with a family fortune of about $200000. But on the other hand you turned it into more than 3 million dollars in stocks and it must be some secrets that you learned to love over the years. What are those secrets. Yes I'll simply say this without saying that the figures are particularly accurate one way or the other. The Internal Revenue Service is awaiting that I'd like you to wait as we know. But nevertheless the things

that I reason that I can do all the things that I do is because I never buy on margin. Therefore when we run into these summer storms or winter storms or what you will you don't have to worry about them you don't buy too big amounts of any one company if they do well because any company even the best can have a bad year and then also you buy companies with demonstrated earning power. If I've never heard of a company's products why should I put my money in. Roughly how many companies would you say you invest in now. Well off family probably has some fifteen hundred company by now. Can you really follow that many thanks. Yes I'll say this is why I have the best research bureau in America. The small stockholders of the country who when the annual meetings come will call my attention to things that I may never think about. After all I don't pretend that all the brains are in my head. As your most familiar role is as a corporate gadfly I've seen you in action. Lots of people have. Would you say you generally get a hostile reception from management when they see you in the audience.

Well son some of these cases that they deliberately plans to make company employees. And in fact this is quite active in this role to describe a certain annual meeting is so much Wilma Yes. She described a certain annual meeting where she saw herself that a woman blew the whistle. And this was the signal for Boeing at Delta which is the old political correct you get out of the way that you are with doesn't bother us. I know you take pride in the fact that your activities as a on behalf at least one variety of consumer the stockholder go back long before Ralph Nader was ever heard of even by his parents I guess. But do you find the climate is more receptive to this kind of consumerism now than it was in the 30s and 40s. We are certainly I think far more socially elate than we've ever been before and I think that trend is going to continue and while I certainly don't go along with Ralph Nader and everything there are certain things anything that makes people come to their annual meetings and ask intelligent questions makes management think. Now this doesn't mean that the person is asking the question

is right though the management's wrong but it's making people think and this is this in itself is making capitalism really live. What do you think of the most important changes that still remain to be made by major corporations. Well I think that for example we have to have my personal opinion a federal incorporation law which would make all corporations have accumulated voting by mandatory. In other words this is a method whereby the only non socialistic method that I know whereby the stockholders can. Have minority representation on the board of directors and all kinds of groups can be properly represented. And I think that that time will come one day before I consume too much of the time myself Frank Caprio I want your comment. I'm really intrigued by one comment you made that is you always learn something at an annual meeting and you encourage stockholders to go to your meetings. It's been my experience that with a few exceptions perhaps Polaroid Xerox where at Polaroid they show the new

products annual meetings are pretty much a waste of time. The reason being that the response by management is usually not accurate or it's wishy washy or it's awfully hard to get the answers. If you prod you get you learn things now Ford says there was a big account of the First National City Bank today in both The Wall Street Journal and if the New York Times one year ago at the annual meeting I raised the questions about the bottom of that your way. And right at that meeting I don't know if you were a light and you keep your eyes and ears open and and follow through and meeting us properly report it. You will learn a great great deal and I'm glad to see that more and more of the analysts a beginning to realize that they are anything but a waste of time. It's a very convenient to think so uncertain management would like to uncover it now. And also it's up to the analysts to ask more questions at the a annual meeting and I don't mean that. The technical nature which you can do privately much better but I mean general interest to

all of stockholders and then it's on the record you see the trouble when you ask questions otherwise too often is when if something goes wrong and they say I never said it you misquoted me this way it's the record he said that there was just a follow up for a moment. Would you recommend that the average stockholder go to normally Dunmore stockholders go to the annual meetings the better off the entire American system is going to be because it's the only way we have a system of checks and balances and it's the only way we're going to we're going to have real democracy in our corporate structure through a site like this through a little bit of a philosophical question there's been lately a lot of debate. As to the obligations of corporate management whether it is to the stockholder or to the public and the moral obligations to the community and so on I wonder if you would realize of course that in the time of the Trans America decision which strengthened the power of the shareholders big state it correctly. A corporation is run for the benefit of the shareholders. It is not a charitable

organization however. Obviously if we are not doing if the company isn't doing what it should be doing well then people are not going to buy the company products and now what will you wait for and offer an example isn't it natural that we're going to be asking questions at a certain soup company next week. Yes about their problem. GRASSLEY Well listen this is the place and reading their annual report you wouldn't still know what went on. You think you'll get the right answers. We can't get a worse one than we've had but I may have to boil you for a while. Go water if you want to. Mr. Gilbert a number of annual meetings have turned into circuses sort of with demonstrations but sometimes the responsible parties to the point where some corporations are even thinking of going back to the small towns in Utah and other places. What's your feeling towards the possibility of an annual meeting happening without shareholders being we fight this constantly and the fact that you have some irresponsible people who can't be handled exactly as would handle in a second Broadcasting Company A few years ago when they had problems of that nature. The chairman said we will now recess the meeting

until these people that will not obey Palme entry procedure put out and then those of us who were interested in parliament. Asking questions and having all the orderly descent. There was no problem and there were plenty of orderly dissent including why council had been fired and things of this nature. In other words all the embarrassing questions of possible could be asked in an orderly manner. There's no excuse for disorder. But if we're going to have big corporations as we should then we must also have big meetings. The two go together and they sense you have every other kind of convention and they call Operation and they last two or three days. So certainly the stockholders can be good who are the owners management is in our employ. Once a year I can answer questions and even if it takes all day you can have a recess if necessary. And I think the trend is going to be that way. Who can I ask a quick question You mentioned a moment ago that you won't 15:00 stocks. The family does. Yes the family yes. And you said that

diversification was a virtue and yet it is all good stock market investors I have any knowledge of. Use the concentration technique they concentrate in a number of stocks and stay with it. Now is the reason why you own fifteen hundred shares or fifteen hundred different companies to provide the vehicle for which you could attend these meetings. Now you'd be surprised how much more your line. If you read the proxy statements the annual report and the post meeting reports of these companies. But going back to the first part of your question yes. Contrary to a certain famous authors viewpoint very low you've mentioned business. I do it with all your eggs in one basket I do watch them actually believe in this theory because Rich terribly right. He's terribly rich. We are not counting his money or mine or anybody else right here but doesn't measure the point the point that I am saying about. I know that certain people at times have been very unhappy with his advice I remember once when he boosted New York Central since you brought that up.

I don't I hope I hope that you are rich and I hope that what we really hope here is that our viewers are going to get rich. And that's what I want to ask one thing about my report which you mentioned it will not tell people how to get rich it tells them what goes on at an annual meeting. But you are indicated that two of your personal rules are not to borrow not to borrow more Never borrow and to diversify. That is right now. Let me list you as a panelist for tonight and ask you what's going to happen to the market in 72. I have made it an absolute rule never to invest on the basis of short time prognostication. I will simply say this. Let us never forget the maxim of J.P. Morgan senior who once said when he was asked when the model we had was in the bear market and he simply adds it always stops raining. And I think it is just as true today as it does in a bull market it is not always going to be the sun shining. Lewis I've always liked the the the Rothschild story and that is the way to make money in the market is to be as nice as you can possibly be when people want to

sell stock be accommodating buy them from them when they want to buy a stock to be accommodating. So love your definition and I and I would simply say that there are two rules. You need a certain amount of capital of course but when you're buying what nobody else wants of the demonstrated earning power. You're economizing on your capital. But the second rule is a far more important one and most people don't have it and that is patience. All right I'll buy that. Lewis you have such a thing after all these years of annual meetings as an on a roll of companies that have been particularly outstanding in responding and communicating with their. Yes in the way and the manner in which a chairman presides at the annual meeting I was lecturing before a group of officials last night and now here we had a second company. The president gave every evidence of wanting to get the thing over as fast as possible. Did he make a good impression on the people no everybody walked out complaining on the other hand when the chairman showed patience and realized that it might be a stupid question the one place and but that person was still asking it it wasn't stupid to him.

Everybody liked him and the company much better. And I can give cases time after time where shareholders have done but Mr. Gilbert you could have a company that's very dynamic where the management is not good public relations where they don't come across were impatient at stockholder questions and yet they answer them and you come away with the feeling Gee they haven't treated the stock holder fairly. And yet these guys may be the most dedicated the most creative management you could get and you might have some real smoothies who are very very polished who give a great presentation and have a junk of a corporation now. And yes anything is possible but let me say that if the people in the first category you just mentioned happened to be successful they might be twice as successful if they use the other methods. And you don't know how many shareholders they turned off at the same time by this kind of treatment. And I have seen for example at a certain meeting when the president was someone able to answer questions properly that a woman has come up to me and said after meeting I don't pretend to know anything about business but if he knows so little about

the affairs of his company I don't want to buy any more of his stock. And she was absolutely quick final question. How many more years these annual meetings can you take. I have asked all directors to retire at 72 and if he'll be my retirement nine years from now they've got to put up with it. Hey just out now our time is up. I like playing dark. Yes. Lewis Gilbert and our panelists for joining us tonight. And I hope you'll be with us again next week when my special guest will be one of the investment world's hottest commodities. Sam not good. The Wall Street economist who has called the turn on many of the economic developments of the Nixon administration. And we'll be asking him what his crystal ball shows from 1972. I hope you'll come. Meanwhile this has been Wall Street Week. I'm Louis Rukeyser. Good night. Why studios up at Maryland Center for Public Broadcasting.

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