The American Scene; People Who Invest

Good morning. The stock market, Wall Street and LaSalle Street have long been a vital force in the American scene. At one time, buying stocks and investing money were rather mysterious operations to many people. People who invested were commonly thought to be only of the upper class and playing a rather risky but highly profitable gain. However, the complexion of this aspect of the American scene has changed considerably in recent years. It now seems that people who invest come from all classes, and the popular notion of it being a game has all but disappeared. To offer some opinions of this modern concept of investing, we're pleased to welcome this morning, Mr. John K. D. Dricks, Director of Engineering Economics Research at Armor Research Foundation of Illinois Tech, and Mr. John Zisler, Investment Broker with E .F. Hutton and Company in Chicago. Gentlemen, I wonder if we can begin with by establishing who are the people who invest today? Mr. D. Dricks. Well, I think the amazing thing is if we answer the question, who they are, first, how many

are there? And I understand, and John, you might check me on this point, that there are over a million and a half stockholders in the United States. And of the million and a half, more than half of them are women. Is this accurate? It's been amazing what has developed recently in the way of investment interest, not only among women, but throughout people generally. Quite a number of years ago, it was thought only proper to put money into government bonds as a safe thing, and you had that insurance policy. But over a period of years, I think we found that what's developed is a widespread interest in investment's period. And the one of the reasons is that people are always subject to the influences around each other. I mean, we find people who go to the food store and they begin to think, well, it wouldn't just be a wonderful thing to be able to own part of it, but this is a wonderful industry. And so the housewife has become part of this great growth of stockholder

interest. That's interesting. I saw some statistics the other day you mentioning the housewife. I saw some numbers on the number of secretaries and the number of women in business. Who are shareholders, so to speak. And I was quite surprised at the number of them that more than half of the stock, the stock that's held in the United States by individuals, are in income groups just slightly over $5 ,000. That was surprising to learn. Well, that's been very true. The people now you find that the average person comes to you and he has me of $100 or $200. And that money he wants to put into a just the good, sound investment for the long term. He wants to accumulate it. He wants to buy a little bit of industry and put it together for the long term growth. Isn't it true that in the past it was only the rich man who could invest or who did invest? That's true. I mean, generally, at one time there was no particular interest in investment

in stocks and securities because this was thought originally as being something very dangerous. It didn't have the security, the concept of security, which we have today. It wasn't the fact that a person didn't have enough money to get into the stock market. It just wasn't a safe investment. It just wasn't done. And it was only the insurance policy or the government bond that was as far as it went. Well, what has caused this change then? Why are people feeling more secure about the stock market today? Well, I think one of the real problems, Eric, is that I think back in after the war, people interest rates were relatively low. I mean, you could get maybe 3 % government bonds paid you three and a quarter. And there was a tremendous opportunity for the dynamic growth of American business. And people could see then that here was an opportunity to get 5 % or even 6 % on your money in outstanding investment companies. And there was such a tremendous possibility that generally people really got a very

decided interest in it as a way of improving their return and their money. You're mentioning that quite a number of people will talk with you, say, with two or three hundred dollars. I wonder, and this is in line with Don's question, I think, is how does a person decide on what issue he's going to buy if he has about two or three hundred dollars, taking this notion that he wants some better return on his money? If you have that amount of money, how would you go about finding an issue to buy? This is a point of personal curiosity. It's kind of a loaded question, John. Well, one would pick as to that thing which would be the most substantial for oneself. You would have to decide on whether you wanted something which is going to be growth, or whether something that was going to be more stable. And you'd have to try and determine as an individual what was right for you as an individual. And it would be a matter of selection. And the individual, he would have a preconceived idea as to what he wanted like. He might come and

say, well, I want to invest in dual tea. We have an outstanding store right next to us and we've been very interested and we buy good products. We would like to have this investment in industry today. And he would come and say, I want to buy a specific stock. Well, there seems to be two attitudes here then. Some people seem to want to buy into industry and others seem to want to increase their money or save their money by some. That's true. Some of them are just looking for a higher rate of return than is available on government bonds or other similar type of investments. And other people are looking toward that long -term growth factor. We've been so conditioned to think about inflation and growth as a part of our economy that as all our bonds come due today after 10 years, we find that purchasing power has dropped off rather substantially. And what we are left with is the fact that the money which we put in fixed income securities 10 years ago

no longer gives us a kind of return which we want today. We have a 33 percent increase in our money and yet that won't buy as much as it did 10 years ago. So everybody has been worried about inflation. We've written about it. We've talked about it. We've discussed it. We've been hit over the head with it that this is the real problem of the future. And inflation now has become a problem. Well, then, John, are you saying that sometimes people are motivated to buy stocks or make investments in companies as a hedge against inflation? Is this a motivation? Very definitely because they've all been worried. The insurance policy which was 10 years ago could buy so much now and not buy as much. So they all want to add that extra a little bit to their fixed income securities, to their real basis of security, and to try and expand that so they can grow with inflation. Well, you mentioned

this as a stocks or investment in companies as a possible hedge against inflation. And there are, I guess, others too. You oftentimes hear people about they take their choice and invest in real estate. Now, how does an investment in real estate compare to an investment in a stock issue as to a hedging against inflation? Oh, I suppose it would be just about the same. The problem is, is those the ease of purchase, which makes the difference. And the average person with a hundred or two hundred dollars, they can't really buy any piece of real estate. But this person now has the ability to be able to purchase this in an easy manner. The consumer has been conditioned to the time purchase plan, the easy purchase plan. And now this has been made available to him through any number of factors, the New York Stock Exchange through the monthly investment plan. He can put by $50 a month or a hundred dollars a month and put it into buy some stock which he would never think of buying if he had to buy five shares or ten shares at a time. This makes it an easy way for him to make the purchase.

And that in itself has been a tremendous impact on the expansion in the demand for securities. What about the idea that by investing in the stock market, you can make easy money fast. Well, this has been one of the real problems which all of us have had to deal with because there has been people are subject to this greed situation that they want to buy something whereby you buy it at three dollars a share. And because of something I heard, I know it's going to six. And this is nothing like any of the logical concepts of investing. So the person goes out and he decides he wants to really double his money overnight. And this causes him problems because then he starts, especially if he's uninitiated, investing in those things which are not sound quality investments. And I think you and I know we're all subject to those popular rumors. Yes, and you hear quite a few of them, the telephone tip. And I

heard Joe say that. And what this is interesting, John, because I think what you're saying is that there is adequate and easily accessible information for a person who would like to invest in the stock market and that this information is reliable. And it is meaningful that you don't have to depend on the the tip type of information. As a matter of fact, I think if we were very critical and let's say do a good job of investigation, I think we'd find a lot of the people that would come into the market for a quick kill. Are the ones that in the long run really have lost out, haven't they? That's right. They very definitely, anybody, the person who comes in who thinks for some of this easy money, he may hit it once who've ride his circumstances, but usually it catches up with him because by the time these tips and these special types of investments come around to the man on the street who has heard it from the grocer who told his sister who second cousin knows the vice president and she was positively told that this was going to happen. By the time it gets around to him, let's say it may have been true, but

by that time the stock has already gone up, which substantially takes care of the major part of the advance. Isn't this a change from the past? I don't know if the popular idea that people used to invest in order to make big money and now the concept is more of a stabilized savings plan or a long -range earning plan. Yes, we have all tried to convince people that the only logical approach to investment is to a gradual savings approach to long -range investment. This idea of speculating for quick money or easy money is a concept which is very foreign to what a good investment person should think about and the average individual unfortunately is very subject to this and so you try and guide him along the channels of a logical approach to investment, but somehow the this idea of the easy money sort of permeates it. We've had it in the past to flurry in uranium stocks, the flurry and Canadian securities at one time, people got badly burned

and people are becoming more sophisticated now so that they're gradually becoming a little more concept of the good investments. I suppose the unfortunate part is John, those few cases of the quick trader get a lot of Ballyhoo and the ones that really flop you never hear about or if you do, you wouldn't like to talk about your own personal loss or a person's loss, but you'd like to point your finger at the great success guy and I suppose that has overwhelmed a lot of people. That's true, the people they only tell you about the stock which doubled in price, the minute they bought it, but actually one of the more paramount influences has been the effect of the mutual fund on the people's purchases. The average person now has found that he can buy a mutual fund which will give him the security of investment which he didn't have before. It'll give him a balanced broad scale investment in a whole group of companies, all of which are sound companies, and the tremendous advertising and the tremendous amount

of explanation of how a mutual fund works has enabled a small investor to realize that the same way that all right speculating may be good if you want to do that, but it isn't a logical way to invest, and if you want to invest in, you don't know quite what company to purchase and what company to buy, you invest in a mutual fund. And then this mutual fund which is a broad scale investment in American industry again gives you an investment in all these stocks, maybe 50 or 100 or 200 or 300 stocks in a portfolio. It takes the choice out of your hands, that does, and it's actually a logical thing because I think that you have the advantage of knowing that you have good management, and I think that's important. I think this is the thing that one here is most about the why what makes a mutual fund attractive is that along with the equity that you're buying, you also buy professional manage that are very funds. But now, John, is it so that the professional management of a fund can you

detect is one fund better managed than another fund? Is there ways of checking this? Let's say I'm going to make up my mind to buy a number of shares in a mutual fund. Can I check that aspect? Yes, you find that the same variation in mutual funds takes place as a doesn't individual stock, so obviously all of them, since they have a certain amount of professional advice, they all have definite benefits to the investor. But the performance over a period of years is such that you find there's very definite differentiations. Now, each mutual fund, again, has a different approach to it. Some are income funds, some are growth funds, some are so -called defensive funds, which have balanced so much in common stocks, so much in bonds and cash and preferred stocks. So, a person can, just like an investment in stocks, select that thing, which is going to be best for them. I don't understand some of the funds too well. I understand the concept, but

do the funds confine the stocks? Can they buy other sources of income? Well, they actually can buy anything to which their particular charter enables them to do. They are controlled by the SEC, and they have to follow, according to what their charter says, but each of them can buy those stocks, or those securities, or they can invest in businesses. They can own businesses outright, but normally they have restrictions, which mean they can't own more than 5 % of any one company or extra dollars of shares in one company. The majority of them, however, are largely confined to dealing in stocks. Yes, and they have a tremendous advantage because you have purchased plans designed for you as an individual. Again, you can reinvest your dividends. You can have an income which produces you so much every month, and the investment funds have designed it so they can fit into pensions and

investment portfolios. I've noticed that the price of a typical, if there is such a thing, fund tends to be the same. How do they manage that? Most of them are priced somewhere between $10 and $20 a share. Well, that depends on the average investor has been used to, and he thinks he's buying a bargain when he buys a stock at a certain price. So if a $15 stock is cheaper than a $30 stock, even though they might have a identical investment value. So the funds ordinarily keep their prices in the level which will appeal to the popular investor so that they know that if they have it at $15, they will do probably twice as much business of people buying their fund as somebody who had a fund at $30. Well, this is a popular idea that has long been held that you have to have a lot of money before it's going to do you any good by investing in the stock market. This seems no longer to be true that

people are investing small amounts of money in the stock market. Very definitely, and this is a real change in concept because people have realized by putting $50 a month or $100 a month into stocks or into a fund that you accumulate that over a period of a year's time. That amounts to a fairly good amount and in 10 years time, that will amount to quite a staggering amount if you reinvest your dividends and reinvest all your funds. And this has helped the growth because this is the money that's put aside for the school fund for special fund for vacations. It's at extra money which is always perhaps instead of putting in the savings bank is put into something and built for the growth and still people have dividends at the same time which enables you to get appreciation as well as income. Well, there's an area here that I'd like you to discuss. Mr. Dietrich says an economist and Mr. Zysler as an investment broker does investing in the stock market earn more money for you or is it just a method of saving what money you do have?

Well, I think what it does is it combines it's a forced savings idea. We have always been conditioned in the past to the payroll deduction plan as a way of forced savings. I think basically it earns money for you over the long term. This is a forced savings approach. So instead of going out and buying a new refrigerator or something like that, well, let's put it into some shares of stock because we know over the long term that this is going to benefit us. I think perhaps John another way of answering the question, does it give you something back for the money you're putting into it as a better than savings? I suppose in the sense of saving in a bank. I think you answered that in part by saying it is now accessible and available to people previously. We thought not. People did not think so in these terms. And the tendency, and you correct me if I'm wrong, has been that usually earnings on stocks that rather dividends paid on them have exceeded, oh, let's say, return on

money from other sources. I think the two things that will probably make for making this aspect more attractive is the accessibility and the history that it has done so has paid a little bit more than other sources. In this sense, I would answer the question, yes, I guess the stock market or other stocks of certain varieties have to the individual paid him a bit more on his money than he got could get somewhere else. There's another aspect. It's you're not only buying perhaps greater income or return on your investment, but maybe the assurance of making it. You have several kinds of people. One I can think of is the very conservative person who would like to earn a low rate of income, but with a great assurance of making it, then at the other end of the extreme I guess would be the man who would like a higher rate of income, but maybe a less chance of making it. And you

find people distributed between these two extremes. And I view this stock market as being somewhere in between, it offers a good rate of return on investment with a little some risks involved, but not as great as the speculator or not as conservative as the man who puts his money in. Well, let's say a bond issue or government securities and so on. It depends on what your attitude towards your return on investment. Yes, that's very important because actually one finds that the rate of return on investment is relatively low if you buy the great growth segment of American industry. Over the last, oh, probably five years or so, we have been so conditioned to this concept of growth stocks that we have bid them up to very, very sizable levels. And the return on the finest growth stocks today are two percent or one and a half percent, which is quite obviously lower than the money they could get in a bank or in through an insurance policy or something like that. But we have

found out that the growth of these companies, the Minnesota mining company, Minneapolis Honeywell, your great growth companies who are constantly developing new products, that these companies in a five -year period of time will be producing an entirely new family of products, which are no way related to what they're producing today. Your drug stocks, for instance, are an outstanding example of that. And so as American industry prospers and as we as researchers, you know, brings out new products and new developments on, people want to take a increased participation in this. They very obviously want to go further and further into these companies, which produce a great growth of American industry, whether it's space age or whether it's a new drug or a new chemical or whatever it is. I think that word new is quite magic, isn't it? We all like to, every individual likes to feel he's getting in the forefront of development. And this is the thing which makes the tremendous interest in investment today. As people want to be where the future is going to be, and this is the missiles

to the moon, the great rocket industry, the missile fuel industry, there is a tremendous amount of interest in that thing, which is going to be the future, because we've all been told that this is going to come, and this is what we should expect. Well, considering, let's say, the amount of money a person puts into a stock at, well, let's say, 1948. And ten years later, this amount has seemingly increased threefold. Now, inflation was brought up a while ago. Now, doesn't this really have an effect on the money that you have invested in the money that you have ten years later? Actually, haven't you just saved that $10 ,000? Well, I think I sense what he's probing for, is the question maybe I can pose that somewhat differently would be, okay, you've gained depreciation on the value of your stock as time has gone by. But also, at the same time, the relative purchasing

power of a fixed number of dollars has gone down. What's the net of this right now? Have you actually ended up with a net gain, or did you stand still, or did you, putting it another way, did you conserve your original investment, I think, is the question he's asking? Well, I think not only you conserved it, I think you've improved it, because if you invested ten years ago in a company, which let's say a growth utility company, you will have found that the great growth in the use of electrical power over a period of time has enabled you to participate in this great growth, and you will have found that in a period of ten years you probably got five dividend increases, where beforehand you might have had a 25 cent dividend, now the dividend may be double or even triple. So, you're getting an increased amount of dividend, which probably keeps up with a cost of living. And at the same time, your capital growth has expanded so much because of the increased use of electrical power generally, that there has been a tremendously

dynamic growth in the capital value of the security. So, you've not only kept up with it, but you've even expanded far beyond it. And in some cases, even the most conservative investments of ten years ago, if you had invested in the right company, are now worth maybe six, seven, eight, ten times what they were worth then. That's the hard part, John, being able to choose the right company, isn't it? I wonder if that could be, that's part of the crystal ball part, isn't it? That isn't being able to foresee some of these growth patterns by specific industry. But I would like to touch on this question once again, and I think it was hidden in your the right choice of being able to conserve one's investment in real purchasing power terms rather than in just dollar terms. Part of that, the answer is largely yes, I assume. Yes. Depending on how well you've chosen. That's it. But if you didn't choose well, it may have gone the other way. There are always among all these companies, there is a certain

amount of companies who simply go out of business. I mean, you pick the companies which were predominant ten years ago, and you find that you may pick 20 companies, you may find that 15 of them have prospered, but five of them have not. And that is the big question in investments today. Obviously, some are going to fall by the wayside, and it's the selection of these things which is so important, and the obvious dependence on good advice, not just the hot tips, the newspaper you read, which says something, but the actual selection and investigation to try and determine where the good values are. And I think this concept of good value is very, very important to the investor today. Can we have just a brief statement on what you feel one of the major effects of this widespread interest and investing in the stock market has done to the market itself? Well, what it's done amazingly enough is to reduce the amount of stock actually available for investment, so that the amount of stock today

is put away in portfolios and put away in safe deposit boxes, and there is a definite lack of stock now, so that as people buy stock and they put it away, it requires an increasingly higher price to bring additional stock actually out. So it's made the stock market go up in itself, to individuals, to the pension funds, to mutual funds. And also, more people being available with money to buy, they're bidding the price up simply because the demanding seats is a fly in this case. John, what are the prospects for increased numbers of issues? Well, there's a fairly sizable amount of it. I mean, there always new stocks, which are being brought out every day. Today, people who own small companies have brought out their securities because they want public ownership of them, and it's an easy way to establish the income tax problems, which exist. I'm sorry to have to interrupt here, but our time is up. Thank you very much for this discussion this morning.

It appears from our discussion that investing in the stock market is becoming more and more common for all of us, and either as a cause or as a result, the investment picture in our American scene has been altered in a number of ways. The volume of business a brokerage house handles today has increased, while at the same time, the amount of the average transaction involved has decreased. And perhaps the most meaningful change is that with this more widespread interest in investing, has come an equally widespread interest and greater participation in the actual operation of American business. Good morning for the American scene.